What Are Payroll Services for Small Businesses?
Payroll service providers (PSPs) can take over the process of managing payroll for any business, including small businesses. The PSP is responsible for getting employees and the IRS paid on time. Payroll service providers should manage IRS reporting, stay up to date on compliance issues and should also stay apprised of changes to tax laws.
When Do Small Businesses Need Payroll Services?
With a small number of employees on payroll, a small business may choose to manage payroll on their own. To simplify payroll, some small business owners subscribe to, or purchase, a payroll processing software which can help save time, and help to avoid common mistakes that can become costly. If a small business owner chooses to process payroll on their own, it is important to keep in mind the following:
- If the business owner is a sole proprietor and is paying themselves a salary, they need to withhold payroll and income taxes
- If the business has any employees other than the owner, the small business owner will need to be sure to meet IRS requirements for withholding and reporting
- If the business is paying independent contractors, even though they are technically considered “self-employed,” there will still be some tax paperwork to complete
How Does a Small Business Choose a Payroll Service?
Like any service, it is usually a good idea to compare a few options and to look at referrals from either a nearby business, a business association, or possibly your local Chamber of Commerce.
There are several factors to consider when choosing a payroll service:
- How many employees does the business have?
- Are the employees part-time, full-time, or independent contractors?
- What other services might be needed besides paying employees and deducting state and federal taxes?
- In many cases, the business owner may be obligated to provide a 401k or savings plan, which a tax advisor can help determine.
- Are there any unions that may already be, or need to be involved?
- How much can the business owner afford to pay a PSP?
- Common practice is for PSPs to charge the business on a monthly basis and the charges will vary depending on the services provided.
Once there is a good idea of what is needed from a payroll service provider, compare the costs associated and the services offered. Don’t immediately rule out a PSP that doesn’t offer all the services you need. Sometimes, considering multiple resources may be more beneficial and cost effective for your small business.
How Much Does a Payroll Service Cost?
Like anything, it will depend on the number of services and the types of packages that a service provider offers. There are services that sell for as little as $39 a month and others that can range up to $350 a month. Consider the time that would be invested by you or an employee into processing payroll on a monthly basis when determining if it is worth outsourcing this work. Remember to compare what the services offer, and to consider your specific needs.
If the service provider offers a flat fee per employee, be sure to check for “per check” fees or even fees based on the frequency of payroll. The best way to avoid these hidden fees is to ask for a detailed account of charges before signing an agreement. It may also be a good idea to also ask how often they raise their rates.
What Else Should be Considered?
If you decide that a PSP is the right choice for your business, find a payroll service that fits your needs and is within your budget. Seek advice from your tax advisor or legal counsel, and look for evidence, from reviews or other businesses, that demonstrates the company’s reliability. If possible, look for examples that illustrate how easy it is to work with the PSP when you need to speak with them about any concerns, and, just as important, what type of experience the PSP will provide for your employees when they need help. Asking a potential PSP for references should help in answering these questions. As with any service provider, be sure to check with your tax advisor or legal counsel before engaging in a new contract.
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