The Case for Choosing a Top Payroll Company
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Last Updated: 05/17/2021
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Determining the best payroll system should always be among a business owner's top priorities. It's particularly important when a business owner realizes just how time-intensive and costly it can be to manage payroll in-house.
If your business is just getting underway, here are several important tips for getting started with payroll services. If you're an established business owner who has decided to transition away from a do-it-yourself payroll process, here's an in-depth look at key considerations to keep in mind.
How to choose the best third-party payroll service
Enlisting a third-party payroll service is an approach increasingly being used by small businesses across the U.S. There are many compelling reasons to outsource your small business payroll, including:
- Potentially significant savings in time and labor
- Reduction or elimination of expensive payroll processing errors
- Improved compliance with government regulatory and tax requirements
Choosing a trustworthy and reliable payroll provider has become even more important during these challenging times. Doing so can help ensure your company is in compliance with federal, state, and local tax reporting guidelines.
But opting to outsource payroll is just the first step a small business must take. Next comes selecting the right payroll service provider for your specific needs. Where to start?
Understanding different types of payroll services
Finding the best payroll system may take some time and effort, but the payoff is worth it. Here's a snapshot of the three different types of payroll systems most businesses typically choose:
Professional Employer Organization (PEO)
A PEO allows companies to outsource key human resource functions like payroll, benefits, training, and guidance to assist small and mid-sized companies in maintaining compliance with federal and state labor and employment laws. Working with the right PEO can help business owners and their management teams stay focused on the business.
Generally speaking, a PEO assumes liability for payment of a business's employment taxes, the filing of tax returns, and ensuring that proper deposits and payments for taxes are made on a timely basis. For time- and energy-strapped employers, working with a CPEO can free up a considerable amount of company resources that would otherwise be spent on payroll and other required, but time-consuming tasks.
Payroll service providers (PSPs)
A payroll service provider is a third-party service with the objective of meeting a business's IRS filing and deposit obligations. Basic services include collection of wage and hour information from the employer and being responsible for printing checks and making direct deposits on the business's behalf.
Reporting agents (RAs)
Reporting agents often serve as a link between the IRS and businesses. The goal of RAs is effective and efficient IRS tax compliance and collection. They help employers to fulfill required tax deposits and informational tax filings to the federal government.
Of course, as the IRS notes about outsourcing payroll, "employers are ultimately responsible for the payment of income tax withheld," so choosing from the right payroll service providers list is critical.
What to consider when choosing a payroll service
There are several factors to take into account when selecting a payroll service for your business. Here are tips on where to start:
Referrals and references
A common first step is asking fellow business owners for referrals (particularly in businesses similar to yours). Once you get a few names, conduct your due diligence. Read online reviews and customer testimonials. Contact various providers and request a list of satisfied client references. Any company that's slow to respond or doesn't follow through should be eliminated from consideration.
Choosing a newly established payroll service provider because it offers discount pricing or some other incentive is probably not a good idea. Making sure your employees are paid promptly and without error is a top priority, and best not left to providers with little or no experience. Any established provider should be able to demonstrate a record of accuracy and reliability, and offer additional resources beyond just payroll.
A personalized approach
Not all small businesses are created equal, and any quality outsourcing provider must be equipped to match their services to a company's specific needs. That means scrutinizing your business needs and customizing their approach, avoiding a generic, one-size-fits-all strategy.
Strong customer service should be an essential element of this personalized approach. This includes around-the-clock support (not just on days when your company payroll is being processed). It should also include a single point of contact: ideally a highly trained, dedicated payroll specialist who can address a wide range of payroll and tax needs, and, most importantly, understands your small business.
A top-tier payroll service provider should offer advanced online payroll software, complete website functionality, and a proven track record of incorporating technological advancements to make their services even better.
Find out if the provider offers you and your employees access to information on an integrated platform, accessible through a web browser, mobile app for smartphone or tablet, etc., and if that platform resides in the cloud. (Cloud-based data is generally considered to more effectively protect and secure sensitive company information.)
Request a trial run of the provider's payroll software to determine for yourself if it's easy to use. Try accessing data from a smartphone or other mobile device. Beware of providers that rely upon outmoded technology to process their clients' payrolls.
What other services can the provider offer? Leading payroll service providers administer employee benefits and retirement plans, and assistance with payroll taxes, sales tax payments, workers' compensation, time and attendance solutions, accounting, employee hiring, screening, and retention. Many small business owners are opting for such full-service providers, since they enable them to focus more of their time and effort on growing their business.
Up-front, transparent pricing
Some providers charge additional fees when new employees are hired, or for allowing employees to change to direct deposit. To avoid the unpleasant surprise of hidden fees, make sure the provider's pricing structure is clearly explained beforehand, specifying any supplemental charges and processing fees. See if the provider is willing to disclose the possibility of pricing changes in the near future.
A Dedicated Point of Contact
Business leaders have a lot on their plates. Your workday doesn't always end when the five-o-clock bell rings. If outsourcing your payroll services lands you on hold for hours, or worse, no one answers the call, then consider choosing U.S.-based experts that provide a dedicated point of contact with 24/7/365 availability. Having the ability to chat with a dedicated specialist or service manager may enable you to access the information you need anytime, from anywhere.
After the cost of goods, payroll is the next most significant expense a company incurs. Even slight deviations in employees’ work hours can throw a company budget into disarray. Industries with weekly or seasonal fluctuations, such as restaurants or landscaping companies, can have significant differences in payroll between seasons.
Some payroll services provide employee and HR analytics that may help you break down data by year, month, week, day, or hour. Compare your data to sales fluctuations to see if you're overstaffed or understaffed and which employees are most productive.
Reliable and Secure
There are many ways for businesses to outsource business payroll services. However, each requires a time and resource investment. Unfortunately, some providers don't use the latest cybersecurity best practices to keep your data safe, putting your reputation and employee information at risk. Others may be slow to fix errors in an application's code, causing the system to go offline, resulting in downtime.
Look for a payroll provider that's well-known in the industry with a long history of supporting clients in your sector. The company should clearly explain its data security practices, have a reliable server with a high uptime rate, and regularly update applications to meet the latest protocols.
Many of today's companies look for scalable solutions that can adjust as needs grow or change. Some payroll partners offer flexible tools, such as a human capital management (HCM) software and service platform, where customers can add or remove modules to support their business use cases. HCM services can help business leaders manage:
- Employee time and attendance records
- Vacation or paid time off (PTO) tracking
- Online payroll and automatic payroll tax administration
- Third-party retirement programs
- Hiring and onboarding tasks
- Employee development and training
Compliance Support Features
Many start-ups and small businesses don't have an HR department or even an HR person. Instead, the job is done by owners or managers who wear several hats. Adhering to laws and regulations can be tricky and time-consuming. On any given day, you may need to:
- Report new hires to state employment security and child support departments;
- Use the government's E-Verify system to verify employee eligibility;
- Pay attention to state or local minimum wage changes;
- Adhere to health insurance requirements; and
- Comply with laws or regulations defining employee classifications.
The right payroll providers stay on top of new or possible legislative and regulatory changes.
What questions should you ask a new payroll provider?
To work with a top payroll company, one that can meet your needs now and as your business changes and grows, you may want to research many providers, from local and app-only to regional and national companies. But what should you look for? What exactly makes a payroll provider exceptional? Here are some key questions to ask of each potential third-party provider:
- Do you understand the needs of my business?
- How easy will it be to switch from in-house payroll processing to an outsourced provider?
- Do you have a team specifically dedicated to getting my account set up and running?
- What are your support options? Do you provide around-the-clock service? Is there a dedicated, trained payroll specialist available to answer questions at my convenience?
- Is your company prepared at the outset to process employee payroll, as well as help me calculate, pay, and file my payroll taxes with the appropriate agencies?
- Do you have a tax compliance team that has an ongoing relationship with the IRS, state, and local agencies?
- What is the extent of your experience working with businesses of my size and in my industry?
- Are you willing to help me better understand the payroll process, as well as compliance with payroll taxes and regulations?
- Do you have a self-service option? Are you still willing to work with me if I wish to maintain control of certain aspects of my company's payroll process?
- How easy will it be for me to purchase your services and get things up and running with minimal disruption to my business?
- Does your company offer the option to integrate related services with your payroll system, such as time and attendance or HR administration?
If and when you decide to hire a payroll provider, take time to learn more about what they do and how well they do it. Your goal is to find and select a payroll provider that is competent, stable, flexible, and easy to work with.
Tips for using third-party payroll services
If you have determined that enlisting the skills and knowledge of a third-party payroll service is right for your business, how do you go about making the best use of their expertise? Here are valuable tips:
- Enroll your business in the Electronic Federal Tax Payment System(EFTPS) and confirm that your new payroll provider uses it when making tax deposits. As the IRS notes about selecting a payroll service provider, this free service offers employers "safe and easy online access to their payment history when deposits are made under their Employer Identification Number," adding that this helps businesses "monitor whether their PSP or Reporting Agent (RA) is properly carrying out its tax deposit responsibilities."
- Also confirm that your RA offers you a written statement that states clearly it is still the employer's ultimate responsibility to file returns and pay taxes on a timely basis. This statement should always be included in any contract between your business and the RA.
- Don't replace the third-party provider's address for your own. According to the IRS, employers should be sure their own address is on record with the tax agency. In this way, you will be sure to get any IRS-related correspondence as needed (bills, notices, etc.). This tactic is also useful in providing a means by which you can monitor the payroll provider and identify any unauthorized diversion of funds.
Integrations With Your Existing Tools
Access to data and insights are critical for today's small- to mid-sized businesses. However, to get a clear view of your information, your systems need to connect seamlessly. Payroll providers may offer a range of integrations to help you share data with your technology stack. Popular integrations for payroll programs include platforms in various categories, such as:
- Hiring and HR: Indeed, Glassdoor, and BambooHR
- Time and attendance: Dolce Software, Insight360, and OnShift
- Retirement and health benefits: Aetna, Charles Schwab, and Prudential
- Finance, accounting, and compensation: Band of America and Chase
- Point of sale systems: Clover, Hubworks, and Altametrics
Selecting a qualified online payroll service provider is one of the most important decisions you can make as a business owner. When switching to Paychex or another payroll provider, take the time to examine your different options and then make the decision that most benefits your particular business needs.