Why keep
payroll
processing
in-house? |
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Some
business owners believe in-house processing to be more cost-effective than
outsourcing.
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Often
business owners
are protective of wage information.
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Sometimes just not knowing how to find a good payroll service provider may
be the reason.
|
The
Reality! |
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Smaller firms with a
stable, salaried staff and minimal changes in tax obligations may well be
better off processing internally. It can certainly be more convenient and
efficient if your needs are straightforward. Many however, ultimately
discover it's not all that inexpensive and that Time Is Money!
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Beware Hidden
In-House
Processing Costs |
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Mistakes due to lack of up-to-date knowledge on payroll procedures.
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Mistakes from less then up-to-date payroll software.
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Time
necessary to keep up to date on information, laws, software, etc.
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Late
payments result in monetary penalties.
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Employee turn-over due to mistakes on employee checks.
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When
To
seriously
consider
whether to
Outsource |
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When
you want ease of mind that you and the IRS won’t meet under negative terms.
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When
you want to avoid a tax penalty that can easily affect your bottom line.
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When
you have hourly employees and/or frequent changes to payroll information.
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When
you figure out that you will save the company money by doing what you do
best.
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When
you don’t want to track and reconcile changes in personnel, deadlines and
tax requirements on an on-going basis.
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When
you have payroll taxes for multiple states.
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When
you must pay someone internally and maintain their training to keep
up-to-date and have a backup person to take over should they become ill or
leave.
|
Basic
Payroll
Services
To
consider |
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Calculation of payroll and tax obligations for each employee.
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Check
printing and delivery.
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Management reports.
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Quarterly and Annual tax form preparations.
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Additional
Services
To consider |
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Automatic check signatures.
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Envelope stuffing.
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Direct deposit services.
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401-K / Section 125 fund plans.
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Integrated HR software systems.
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Selecting A
Payroll
company
|
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Unlike other services you may use, you
will communicate regularly with your payroll provider. Obtain a clear
commitment to a high level of “personalized” customer service and
assurance that you will not be dealing with some “sales” representative,
but with someone who is familiar with your account and handles it
regularly.
-
Request a number of client references,
including some that might have had problems that were resolved. Call these
references and discuss customer service specifically. If they seem
delighted, ask a simple question: “If there was one thing you wish they
did differently, what would it be?” Don’t even consider a provider who
will not provide references.
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Thoroughly review the services you require
with the potential providers.
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Look for providers that are within
reasonable driving distance, allowing you to pick up checks if an
emergency arises.
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Determine who is responsible for penalties
due to late or non-filed tax liabilities.
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Find out if the provider “impounds” tax
payments. This means that they move tax liabilities, along with payroll
amounts, from your account to theirs prior to due dates.
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Confirm that local or city payroll taxes
are calculated and how they are paid?.
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Questions
For Those
References |
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Have you used another payroll service? If
so, why did you switch?
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If you had it to do over again, would you
chose the same company?
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Communicating
Your Payroll
Information |
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Nothing in your relationship with a payroll service provider is more
critical then when, how and why you communicate with them regarding regular
payroll input, changes, last minute fixes and more. Spend a lot of time when
reviewing your potential providers, talking specifically about these issues.
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Will information for each pay period be
sent via a telephone call, fax, email, remote entry or other means? Are
they flexible to meet your needs? The “traditional” method of the employer
calling the information to a service representative offers the least
flexibility as it means the two of you must find a mutually agreeable time for both
and must do so each payroll period. What happens if you get tied up with a
profitable customer and miss the time? Are there any penalties?
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While fax machines provide a more flexible
method, they do also have some security issues. Review procedures
regarding this method to avoid problems.
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Remote entry may sometimes cost more but can
be an effective means of entering data because you do it all yourself.
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Internet entry is still another way of
entering data and communicating.
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Filing
Electronically |
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If the provider is going to file using the
Electronic Federal Tax Payment System (EFTPS), is there any cost involved.
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If you are going to use the EFTPS system
yourself, what assistance will be provided by the payroll provider and are
there any fees involved?
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Many providers now have “remote entry” or
other methods that can include Internet entry within secure access. These
services often have additional costs, but can be very cost effective as it
allows the employer to enter payroll data 24 hours, 7 days a week, and/or
make last minute changes easily.
|
check
Their
Pricing |
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Be aware that payroll
services are competitive and reflect local conditions. The typical basic
service includes a per check (or pay
transaction), PLUS a base account or processing fee per pay period. Less
frequent pay periods typically have higher costs per pay period, however
annually the overall costs are less.
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BEWARE of those costs that get “overlooked” when they are
quoting per pay period costs. Things like year end W-2s. Once a price proposal has been issued, request
that the providers specifically state that there are “no other costs
involved other than those shown in their proposal and/or in other literature
provided and clearly shown.”
|
Review
carefully
with each
provider |
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Their individual costs for any and all additional services.
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Tax filing fees.
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Direct Deposit fees (typically a per payroll period, plus a
transaction cost).
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Setup fees, for initial setup, adding and/or dropping employees.
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Fees for updating or adjusting employee information.
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Any additional fees charged for anything during the year. There should be
NO SURPRISES!
|
NEGOTIABLE
PRICINg |
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Pricing for services is
frequently negotiable. However, it’s important that you do your homework.
Some providers have low cost basic services but are expensive with add-ons
such as direct deposit, or stuffed envelopes or delivery.
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Others may have a higher base
cost, but their add-on features are less costly. You must be certain that
you know what you want first and then provide each potential payroll
source with the same exact list of what you need in the way
of features.
|
Ask
these
Important
Questions |
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What does your basic service include?
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How quickly can you re-run a payroll if
there is a mistake?
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How long does the average client stay with
you?
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If I use your tax filing service, do you
cover the penalties and/or interest charges?
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Do you provide filing assistance for local
taxes?
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What is the cost to file taxes for
multiple states?
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What is the cost for your service for one
year, including year-end W-2 forms?
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How long are these rates in effect? What
rate increase should I expect after that?
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If there are payroll data mistakes, how
long will it take to reconcile the errors and what will it cost?
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Some
important
Final
Tips
before
Making
Your
Choice
|
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Look for a stable provider
If a firm's only business is payroll, make sure
to check the number of clients it supports and look for payroll service
providers who have
been in business for some time. This does not
translate into “the more clients the better.” The large national payroll providers
have thousands of customers, yet historically they rank much lower
in customer satisfaction surveys, due primarily to the fact they just do
not historically provide that
extra “personal touch” that most business owners want and often need.
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Double-check the math when
switching
Transitioning to a new payroll firm rarely
occurs without glitches. Be especially thorough in reviewing the first
paychecks issued through the service as well as the money paid to cover
tax obligations.
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Watch prices over time
Do not be swayed by services that waive charges
upon sign-up. Often rates go up or charges start accruing after six months
to a year of service.
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Understand that, even
though you have a payroll provider doing your payroll, it’s your business
and you need someone you can trust to do it right and when it’s not right,
they will solve the problem first and then haggle over who was at fault!
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