1.

Payroll outsourcing basics

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Processing employee payroll can be complicated, time consuming, and difficult to do correctly. By law, employers are required to withhold portions of employee wages for payment of federal and state taxes. These tax amounts arent always the same for every employee, or even the same every pay period. Amounts can change from month to month depending on the employees situation. Having a baby, moving, getting married, and inheriting money can all change an employees tax status and have an impact on how much should be withheld. Changes in state and federal legislation and amendments to tax codes can also complicate matters even further. If you miss a filing deadline or compute amounts incorrectly, you can be hit with expensive penalties and fines. Payroll services offer a solution to these concerns. Companies that specialize in calculating employee tax, allocating funds to employee accounts, and job and project cost reporting can be a valuable resource to any business struggling with these functions. Payroll companies calculate withholding amounts, process payments, and provide required forms, likeW-2s, at the end of the year. Some companies even offer online account access for employees, eliminating the need to save pay stubs or bank receipts. A payroll outsourcing company can also calculate labor costs for each job or client, allowing business owners to make strategic decisions about future staffing needs. Payroll processing companies are used by businesses of all sizes to keep track of labor costs, offer employee payment services, and compute and pay employment taxes. This guide provides information on the ins and outs of payroll outsourcing. Make sure you know the terms of the trade, how outsourcing can save your business money, and some of the features you can use before you start shopping for a vendor. Using our tips, you can choose the best outsourcing company for your business.

2. Payroll terms and key concepts

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It can be difficult to keep up with legislation changes, amendments to state and federal tax laws, and other factors that can change employee pay amounts. Knowing some of the most common

terms related to payroll services can help you shop for a vendor. Here is a basic list of payroll outsourcing terms and concepts. The IRS website or the State Tax Board site for your state will have more specific information about employee savings plans and tax calculations.
Accounting Period

The time period covered in an income statement, usually quarterly and/or annually.
Advance Earned Income Credit

If employees are eligible for the federal earned income tax credit, they can take an advance by withholding less from each paycheck. Most payroll processing services can perform this calculation.
Archer Medical Savings Account

A pre-tax savings account where an employee or employer (not both) is able to deposit funds for use at a later date.

Cafeteria plan

A plan where funds are taken out of employee wages pre-tax for child care, insurance, or other reasons. Internal Revenue Code 125 lists qualified plans.
Circular E Employers Tax Guide

This guide is published annually as an up to date outline of employer tax responsibilities.

Compensation

Payment to employees for services rendered.

Constructive Receipt

When wages are actually available to employees.

Deferred Compensation

A delay of wage payment to a future date, such as for a pension plan or employee savings account.
Defined Benefit Plan

These plans define employer contributions to an employee account using a formula that takes into account salary and length of service.
Direct Deposit

A method of payment where employee pay amounts are deposited directly into a bank account.
EIN (Employer Identification Number)

How an employer is identified for tax purposes, or the IRS and state code for an employer.
EFPTS (Electronic Federal Tax Payment System)

This system allows an employer to pay employment taxes, transfer withholding amounts, and make deposits to qualified government savings plans electronically.
Exempt

In payroll context, electing not to have tax amounts withheld from paychecks. An employee is exempt if he or she meets certain qualifications set forth in the tax code.
FICA

The acronym for Federal Insurance Contribution Amount, or the social security tax withheld from employee paychecks.
Withholding Amount

The amount set aside from employee wages that is used for the payment of employment and other taxes.
Gross Pay

The total amount an employee receives in pay before any deductions are made.

Independent Contractor

Any person performs services for a business as a non-employee. The Internal Revenue Code defines independent contractors by a list of different factors.
IRA (Individual Retirement Account)

An account where an employee can deposit funds for retirement without incurring additional tax obligations. advantages.
Payroll Register

A report generated at the end of an accounting period that specifies employee pay amounts, tax amounts withheld, and payments made in association with payroll services.
Percentage Method

The most common method used to calculate how much tax to withhold from employee pay.
Tax Levy

An order to withhold employee wages in order to make payment toward unpaid employee taxes.
W-2

An end-of-year statement of earnings, withheld amounts, and other payments made on behalf of an employee.
W-4

An employee form that specifies withholding amount and exemption status. Employees can amend W-4s at any time to change the amount of tax withheld from paychecks.
One advantage of outsourcing is that youll have access to many options that your own bookkeeper might not be able to provide. Payroll services arent limited to processing paychecks, they also perform several other services.

Tax Computation
Most payroll vendors can compute employment taxes like social security (FICA), unemployment amounts, and state and federal income tax withholding totals. Most employees elect to withhold state and federal taxes from their wages, and then get a refund when they file a tax return at the end of the year. A payroll company will compute the amount to be withheld, file the appropriate documentation, and pay taxes on the employees behalf. Some employees will qualify for tax credits. In these cases, the payroll company can offset these credits against tax amounts owed,

and advance amounts according to the applicable state or federal law. Payroll companies stay up to date on tax law changes, so youll have the most current information available when it comes to tax calculations.

Reporting
Most payroll companies also offer reporting functions. Payroll outsourcing services offer these services to businesses that offer commissions and bonuses, or those that want to track job labor costs or employee output in relation to pay. Reports can detail costs by employee, by project, or by client, based on employee hours worked or billed. Overtime, sick leave, and holiday pay can be easily monitored using this feature. This function can be especially valuable if the vendor offers online account access. Employees can plan vacation time in advance, and have easy access to pay stubs and employment records.

Direct Deposit
Most payroll processing companies offer this feature as part of a basic payroll package. Employees appreciate this feature because it gives them faster access to pay amounts. Eliminating paper checks is also a great way to reduce waste and save time taken up by printing and signing paper documents.

Online Payroll Access

Several payroll companies store employee records electronically. This is a great option for businesses that want to cut down on paper waste, and those who want easy access to employee pay records. Employees can access their accounts online, eliminating the need to save pay stubs reports, or receipts. Employees can monitor accounts online, make changes to withholding amounts, divert funds to savings accounts, and make contributions to retirement plans very easily. Using an online payroll processing company can give employees control over their finances and provides a less wasteful storage mechanism for documents.

5. Benefits of outsourcing payroll

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Outsourcing payroll offers several benefits for businesses of all sizes. If youve outsourced other functions, like telemarketing, website design, or printing services, you know how valuable it can be to have an expert working on your behalf. By hiring a professional, you can avoid costly mistakes, save money, and free up time to do what you do best- manage your business. The following are some of the most commonly benefits of hiring a payroll services company:

Eliminate the need for in-house payroll

In-house bookkeepers are expensive to hire and train. A salaried bookkeeper usually performs invoicing functions, records paid bills, and estimates job costs. Hiring a bookkeeper can run upwards of $40,000 a year in salary costs, plus benefits you hire someone full-time. Part-time bookkeepers are slightly less expensive, but they usually charge hourly. Performing payroll functions will usually be much more expensive at these rates. Though a bookkeeper can be invaluable in performing other functions, outsourcing payroll is usually much more cost effective than having your bookkeeper calculate tax amounts, file documents, and write checks. Hiring a payroll outsourcing company eliminates the need to train employees in your payroll methods, and ensures that there will be no delay in payments and benefits if an employee is busy, out sick, or otherwise unable to complete work on time. Most business owners find payroll to be a tedious and time consuming effort, and are happy to hire it out to another party, especially one who has the capacity to constantly research tax laws and regulations. A payroll company is a reliable source for services when your business is in busy season, cant hire a bookkeeper, or requires complicated calculations every pay period.

Expert service
The number one reason most businesses hire a payroll company is the reassurance that comes with hiring a professional. Payroll computations can be complicated to keep track of. For example, employees can amend a W-4 as many times as they like, so tax information can change from month to month. Social security tax is only assessed up to a certain cap, which many employees will meet during the middle of the year. Tax laws at the state and federal level change from year to year. Miscalculating tax or savings amounts can result in costly penalties and fees for your business and your employees. A payroll company will be able to make accurate calculations, and most offer to pay any penalties incurred as a result of their own mistakes. Different payroll companies cater to different industries. Businesses that offer flexible savings accounts, cafeteria plans, or retirement account contributions will find these features very

valuable, as the paperwork can take hours to complete during each pay period and can be very confuting. Industries that require specific types of insurance payments or taxes can also benefit from hiring a payroll company.

Saving money and time

Hiring a payroll company will eliminate the need to perform these functions yourself. The more time you as a business owner (or your bookkeeper) spends on payroll, the less time is devoted to other important business functions. A payroll company can perform calculations, make deposits, and generate reports much faster because they have years of experience and knowledgeable staff. Performing your own payroll processing functions will take more time, and is likelier to result in more mistakes than outsourcing. Outsourcing is a great way to save money and time. You probably didnt start your business because you were passionate about performing administrative tasks. Most business owners decide to start their own company because they have a real love for a product, service, or industry. By focusing on what you do best and leaving the rest to a professional, you can devote more time to growing and managing your business.

6. Payroll service costs

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Different payroll services will have different billing structures. Some companies charge per check, or for each deposit made. It is also common to charge for each service individually, or to charge by employee for a certain menu of services. Most companies have a standard list of features, and then charge extra for additional services. Most basic payroll packages include:

Basic withholding computations Online access for employees/employer Basic tax filing Direct deposit or check writing

The total cost will depend on a few different factors, such as the number of employees you have, the length of pay periods, the complexity of tax calculations, and which state laws apply will all have a significant impact on the amount you pay. Basic payroll service for a business can cost anywhere from $25 to as much as $200 a month. Businesses with less than 10 employees will usually pay more per employee, as volume discounts for large businesses are pretty common. However, businesses with a larger number of employees will be subject to more complex tax regulations, so savings from volume discounts

might be negligible. Payroll outsourcing services usually also offer end of the year reporting features, such as generating W-2 forms, for an additional charge. Charges for features like online access, electronic pay stubs, savings accounts contributions, and others might cost as much as $50 per employee, depending on how many employees you have and how often they are paid. Payroll processing companies usually also charge a fee for adding employees (new hires) or for changing employee pay information (amending a W-4). Make sure you are aware of these fees, which can add up quickly. A big cost consideration is the frequency pay periods. Most businesses pay employees weekly, bi-weekly, or monthly. The shorter the pay period, the more checks or deposits. Lengthening pay periods to one month is one way to save on costs. Check printing can be expensive especially if done often. In fact, most companies will actually offer direct deposit at a less expensive rate than paper checks. As a business owner, its a good idea to get quotes from as many vendors as possible. If any offer you a free trial, take it- this is a great way to check out the service, to see how easy it is to use, and to make sure calculations are timely and payment is made correctly. Costs and procedures will vary by company, so make sure to find one that works well with your business.

7. How to choose a payroll vendor

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The payroll services vendor you choose will have a big impact on your business. Choosing a trusted vendor is important- a payroll company will have access to your financial information, your employee bank data, and employee social security numbers. Make sure you choose wisely.

Beyond security concerns, vendors should provide good customer service, offer a system thats easy to operate, and make payroll processing easy and uncomplicated. When choosing a vendor, make sure to get references, test the service by performing a preliminary call in or input of payroll, and get a free trial if you can.

Reputation
Hiring a payroll outsourcing company based on recommendations from other businesses is always a safe bet. Ask others in your industry how easy the call in process is, and if the company they work with provides good customer service. Ask if the payroll processing company guarantees its work by paying fees or penalties based on late or erroneous filings. If so, ask how many times a vendor has paid these fines in the past year. Make sure to read a contract or service agreement thoroughly, and make sure you are aware of your rights if employees are paid late or

if taxes are calculated incorrectly. As a business owner, you are responsible for employee and government agency payments irrespective of the actions of a third party payroll company.

Services
A vendor should offer the services you need for a reasonable cost. If you need industry-specific services like increased insurance or workmans compensation amounts, long-term care or specific medical savings accounts, or catastrophic loss insurance, look for a vendor that can provide these services. Dont assume that all companies can offer all features. Choose a vendor with experience in your industry.

Procedures
Businesses choose one payroll company over another because of user interface. How you call in or input payroll information can have a big impact on your business. Some key considerations are timing, access, and reminders. Timing refers to how far in advance you need to provide information. The shorter the better- if you need to call in a week before checks are processed, this leaves a large window open where employee information can change, resulting in errors. Access refers to your account. Can you input information online, or have a bookkeeper submit information? How many people can be authorized to provide pay information? These are important considerations. If you are away from the office, traveling, or unavailable, another employee will need to provide information. Reminders are also important. What happens if you dont provide information on time, or if you are unable to calculate hours worked for some reason? Make sure the company can address all of these issues.

8. Tips for POS system buyers

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Here are a few final tips for purchasing a POS system

Buy Software First

Dont purchase scanners, printers, or other POS equipment before youve picked out a software program. The software that is best for your business might not be compatible with these devices, or might not even rely on them at all. Buying software first ensures you wont be stuck with unusable hardware.

Use Industry Specific Programs

Vendors with experience in your industry will be able to understand your needs and tailor a system specifically for your business. For example, vendors that specialize in online businesses will have access to different credit card processing software for ecommerce merchant accounts.

Buy the Whole System from the Same Vendor

The biggest problems businesses encounter when implementing a POS systems usually stem from incompatibility- either hardware and software wont work together, the merchant account wont allow POS transactions, or the systems individual components use too much power that the system fluctuates or collapses. All of these problems can be avoided by using the same vendor for all components. A good vendor will be like an architect, engineer, and interior designer rolled into one- the end product will work together and with your business.

Get a Demo or Free Trial

Most vendors let you try out software at your business to see how it works. At minimum, you should be able to use software, hardware, and try out reporting functions in a demo transaction. Test processing a sale, review inventory features, and generate a sales report. The best way to know if a system will work for you is to test it. Far too many businesses buy the cheapest system without shopping around, only to find later that it is too complicated or confusing for employees to use. Systems are usually customized to your business, so you wont be able to simply return a system that you dont like. Shop smart, and make the right choice the first time. Payroll processing is one of the jobs that many finance employees hate to do. Adventurous employees considered it as boring and less challenging. It is also one type of a job that is time consuming. It can also be a money burner business activity. Businesses can avoid these payroll related problems by hiring payroll freelancers on GetACoder. Below are some of the benefits companies can get in outsourcing payroll services. 1. Cost reduction for small businesses, payroll processing expenses can be unsustainable. One way to lessen payroll expenses is to outsource payroll service providers. Generally, payroll outsourcing offers lower cost than maintaining regular in-house payroll employees. 2. Better staff productivity Unfortunately, manual payroll processing is still used by many companies today despite the availability technologically advanced payroll techniques. Most of them have no financial capacity to avail the technology. Spending unnecessary time in payroll processing is wasteful when other important things are in need of attention. Through outsourcing, the company can make use of their payroll employees in more productive ways. 3. High accuracy Competent and very good in-house payroll staff are not impossible to find, however, mistakes are always inevitable and big ones, especially when dealing with payroll can

be very expensive. Payroll outsourcing firms always aim for high accuracy as mistakes do not only reflect their firms credibility but can also cost them money. Companies can seek financial damages from their providers in case payroll mishandling happens. 4. High reliability With payroll outsourcing, companies need not worry for the next payday period in case the in-house payroll employee is not available. Payroll outsourcing firms are known for their reliability. 5. Fast turnaround In-house payroll services are generally limited to what the company can afford. In some cases, businesses resources do not allow them to have a speedy payroll turnaround which creates friction between the management and the employees or even with tax collectors. This can be remedied by hiring an outside firm with the right technical and technological resources for a fast payroll turnaround. 6. Lesser risk With payroll outsourcing, the companies risk is lessened when payroll discrepancies occur. Theproviders are fully responsible for any mishandling, delays, frauds or other issues. Payroll services providers generally are better equipped technologically that enable them to easily detect these payroll problems making them the best choice. 7. Fewer hassles Outsourcing a payroll service firm saves companies a lot of hassles. This include the hassles of hiring and training a new staff in case the person in charge resigns, retires, is on holiday and so on. In the end, the management and employees have more time to spare in dealing other important business matters.

Should You Be Outsourcing Your Payroll Function?

14 March 2010, 5:33 pm Business owners are constantly challenged with reducing costs to maximize profitability and with simplifying their operations to give them more time to focus on the strategic side of their business. If youre not doing these things, youre destined to continue feeling like your business is running you instead of the other way around. One way to easily achieve these goals of simplification and cost reduction can be through outsourcing. Most business owners outsource many functions of their business including tax preparation, legal counsel, and hiring personnel. Its fairly obvious that its cheaper to hire a tax expert once a year than to retain a tax accountant on staff or to stumble through the process yourself. Lets look at a slightly less obvious function that can be outsourced: payroll processing. Scenario 1: Youve finally hired enough employees that theres just no way to justify them as contractors and your tax preparation fees have tripled as you try to sort things out at the end of the year. Your business is growing and you need to get some basic structure in place.

Scenario 2: Youre a healthy mid-sized company with a couple of million in annual revenue and a single staff accountant whose time seems to be completely monopolized with processing bi-weekly payroll for your 20+ employees. Its a miracle when bills are paid on time and dont even talk about collections on those old invoices. Youd like to refocus that accountant on activities that actually bring cash in the door. Scenario 3: Youve grown still further into the lower middle market and you now have a dedicated AP clerk, AR accountant, and a controller. Unfortunately, your controllers time is still wrapped up in that pesky payroll though youd really rather have their help analyzing your financials to prepare management reports and budgets. Scenario 4: Youre in negotiations to sell your company and the buyers due diligence reveals you owe $75,000 in payroll withholdings from Scenario 1 Each of these scenarios highlights a decision point in the typical small business where outsourcing payroll should be considered. Before that last scenario becomes your reality, take a look at whether you should be outsourcing payroll.

What is Outsourced Payroll?

Outsourcing payroll simply means utilizing a payroll service provider to handle the calculation of payroll checks; perform tax calculations, deposits, and filings; and to assist with payroll tax law compliance. This third party serves to insulate the company from liability and risk associated with doing any of these things incorrectly.

What are my options?

Your CPA is the first place to look since they may offer the service or they may have a preferred method that fits with their year-end process to save you money on tax preparation. They might recommend a software-based service such as QuickBooks or Peachtree, or they might have a relationship with a company that specializes in payroll processing such as Paychex. You bank might also offer a software package or a service, or they may also have a relationship with a third-party provider.

What kind of business should consider Outsourcing Payroll?

Unfortunately, a company that has one employee will have the same compliance requirements and penalty percentages for late payments to the State and the IRS as a company with a hundred employees. This means that your company is never too small to worry about payroll. In fact, businesses of all sizes should periodically analyze the cost-benefit of maintaining a full internal payroll department versus utilizing an outsourced option. What kinds of benefits can I expect from Outsourcing Payroll?

First of all, the knowledge that all payroll related tax deposits and returns are filed timely and properly and that the IRS will not be knocking on your door tomorrow should help you to sleep soundly at night. Other immediate benefits include more time back in your day, reduced compliance/audit risk, and happier employees. Companies that use a payroll service provider should maximize their relationship to take advantage of even more benefits including workers compensation reporting, 401k administration, human resources compliance, time & labor tracking, and more. Outsource more than just payroll and reduce administrative burden even further by using the third-party provider for all the ancillary services that rely on payroll data. For example, ask them to help with the annual Workers Compensation Audit. This annual audit ensures that the insurance company was paid all the premium money owed for the previous year. Since the outsourced payroll provider knows what each employee was paid, they can help with the premium calculations to generate the annual report for the audit. More importantly, they can generate a monthly report to alert you if you are tracking higher or lower than your estimate for the year. This means, no more Workers Compensation Audit surprises and a great budgeting tool.

But Ive heard there are problems with outsourcing

Some of the perceived concerns with outsourcing payroll include losing control and access to information, fears that your payroll is too unique or complex, or the assumption that it is less expensive to do everything yourself. However, todays technology continues to enhance payroll processing capabilities and make it even more cost effective. It is worth exploring whether these concerns are real or whether your situation would be simplified and streamlined with an outsourced solution.

If I decide to go down this road, what will the transition process be like?
A good payroll provider will strive to make the transition as seamless and easy as possible. Generally, your representative should be able to get everything they need to configure your new system from your existing records and will take care of all the data entry as part of their service. During the initial setup process, errors may be identified and appropriate steps presented to you for fixing them. The first outsourced payroll should be ready for processing within 3-4 days of data collection.

Ok, sounds like something I should look into. What will this cost me?
Your cost will depend on your specific situation including your payroll frequency, number of employees, and types of services requested. As an example, a one person S-Corporation, with the owner as the only employee paid monthly, is $39.00 per month at Paychex and includes direct deposit, payroll processing and tax payment/filings. By way of comparison, the IRS estimates it should take nearly 3 hours just to complete one of the quarterly forms! Of course, it costs nothing to call an expert and ask them to analyze your business and give you a quote.

Payroll Processing Services

Take on..

10 Jun, 2012

Creation & Maintenance of database that will capture the following data: o Masters, Rules, Wage structures o Complete Employee footprint

The flexibility built into the system and exhaustive wage structures allow the system to meet most requirements with minimal customisation. Provision for investment intent declaration at start of the year to facilitate tax planning

Monthly processing..

Payroll processing that will be undertaken on a monthly basis o Processing of time office data to credit to employee's bank account o Updating of Masters and Employee footprint o Incorporating any wage structure changes o Reimbursements in the nature of Cash / Voucher adjusted in the payroll o Incorporating any rule changes both internal and regulatory o Incorporating any tax laws changes o Ad-hoc payments - bonus, performance awards, etc. o Exemptions under LTA, Medical allowances and Conveyance as per rules

Automatic arrears computation for cases such as o Delayed wage revisions o Retrospective adjustments

All Statutory requirements as per the requirements of various regulatory authorities as well as a comprehensive tax module o Income Tax compliance o Profession Tax compliance o PF compliance o ESIC compliance o Compliance with Employee Welfare Scheme such Labour Welfare Board and others that may be applicable to the establishment

Prioritised recovery sequence and carry forward of any un-recovered amounts to next processing month. The Loans covered can broadly be classified as: o Company loans o External loans - LIC, HDFC, etc. o PF refundable loans

Outputs..

Pay-slips (printed or emailed). o Payments o Deductions o Cum. Totals o Loan balances o Leave Balances

Form 16 (Income Tax) to employees with an option for bulk filing at Income tax office at a nominal rate borne by the employee Statutory Reports needed for compliance with the various regulatory authorities o Form 24 (Income Tax) o Form 12 BA (Perquisites) o Section 217 (Companies act - attachment to the directors report) o PF Return o Prof. Tax Return o ESIC Return o Employee Welfare Scheme Reports

Other MIS reports as specified by the client at the time of take on o Company loan reports, Department-wise/ grade-wise employee cost reports o Consolidated Salary Summary, Pay Register, Net Pay Advice o Dynamic on-line reporting module for generating customized reports o Journal Voucher in text file

At the end of every month the entire data of that month is uploaded on a CD with an inbuilt query generator and given to the client.