The Outsourcing of Payroll Services – Although the outsourcing of payroll services is often one of the smartest financial choices a business can make, there are certain considerations that should be addressed when selecting a third party payroll services provider. While the outsourcing of payroll services has numerous advantages, the fact that these functions are an important component of a company’s success makes the selection of a third party payroll services provider an important decision. Since the employer is ultimately responsible for its payroll and the accompanying tax responsibilities, it is important to select a payroll services provider that is both competent and ethical.
Payroll services providers can supply any or all of the numerous functions that are associated with administering a company’s payroll, making payroll tax payments, managing employee benefits, submitting payroll tax returns, preparing payroll tax reports and monitoring changes in payroll tax laws. However, the ultimate responsibility for preforming any and all of the payroll services functions of the company lies with the employer. For this reason, the IRS devotes an entire section of its website to outlining the employer’s payroll responsibilities and highlighting some of the important points for the employer to consider when selecting an outside payroll services provider. Some of those points are summarized below.
- Ultimate Responsibility
Although an employer may enlist the services of a third party payroll services provider to calculate and make the required quarterly payroll tax payments, it is the ultimate responsibility of the employer to ensure that those tax payments are made. In the case where a third party fails to make the required federal tax payments, it is the employer’s account that will be assessed any resulting penalties and interest. It should also be noted that, because payroll tax payments include amounts that are withheld from employee wages, the IRS uses aggressive techniques to encourage compliance. The Trust Fund Recovery Penalty is equal to 100% of any unpaid payroll tax balance and can be assessed against any person within a company who has the power to direct , collect or pay payroll taxes.
- Address of Record
The IRS sends any official correspondence related to a given payroll tax account to the address of record for that particular account. Because it is the employer who is ultimately accountable for the payment of payroll taxes, the Agency suggests that the address of record be left as that of the employer rather than changed to that of a third party payroll services provider. With this arrangement, the employer will receive any official IRS correspondence related to a problem with its payroll tax account.
- Electronic Federal Tax Payment System (EFTPS)
The IRS suggests choosing a third party payroll services provider that submits payroll tax payments using the Electronic Federal Tax Payment System. This system is required for payroll tax payments in excess of $200,000 and is strongly recommended for all payments. Not only is the system fast and accurate, but it also provides immediate confirmation that a transaction has been completed. In addition, an employer can log into the system at any time to verify that a payroll tax payment has been made or to access their tax payment history.
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