Outsourcing Payroll Duties

Outsourcing payroll duties can be a sound service practice, but ... Know your tax obligations as a company

Many employers contract out some or all their payroll and associated tax responsibilities to third-party payroll company. Third-party payroll provider can improve business operations and assist satisfy filing due dates and deposit requirements. A few of the services they supply are:

- Administering payroll and employment taxes on behalf of the company where the employer supplies the funds at first to the third-party.
- Reporting, collecting and depositing employment taxes with state and federal authorities.

Employers who outsource some or all their payroll responsibilities should consider the following:

- The employer is ultimately accountable for the deposit and payment of federal tax liabilities. Despite the fact that the company may forward the tax totals up to the third-party to make the tax deposits, the employer is the accountable party. If the third-party stops working to make the federal tax payments, then the IRS may examine penalties and interest on the company's account. The company is responsible for all taxes, charges and interest due. The company might also be held personally accountable for specific unsettled federal taxes.
- If there are any concerns with an account, then the IRS will send correspondence to the company at the of record. The IRS strongly recommends that the employer does not alter their address of record to that of the payroll provider as it may significantly restrict the employer's ability to be informed of tax matters including their organization.
- Electronic Funds Transfer (EFT) must be utilized to deposit all federal tax deposits. Generally, an EFT is used Electronic Federal Tax Payment System (EFTPS). Employers must ensure their payroll companies are utilizing EFTPS, so the companies can verify that payments are being made on their behalf. Employers need to sign up on the EFTPS system to get their own PIN and utilize this PIN to regularly validate payments. A warning needs to go up the very first time a service supplier misses a payment or makes a late payment. When an employer registers on EFTPS they will have online access to their payment history for 16 months. In addition, EFTPS allows companies to make any extra tax payments that their third-party service provider is not making on their behalf such as estimated tax payments. There have actually been prosecutions of people and business, who acting under the look of a payroll service supplier, have stolen funds meant for payment of employment taxes.

EFTPS is a safe, precise, and simple to utilize service that offers an immediate verification for each transaction. This service is offered free of charge from the U.S. Department of Treasury and permits companies to make and confirm federal tax payments electronically 24 hr a day, 7 days a week through the web or by phone. For more details, companies can enroll online at EFTPS.gov or call EFTPS Customer support at 800-555-4477 for a registration type or to talk with a customer support representative.

Remember, employers are ultimately responsible for the payment of earnings tax kept and of both the employer and staff member portions of social security and Medicare taxes.

Employers who think that a bill or notification received is a result of an issue with their payroll company should contact the IRS as soon as possible by calling the number on the costs, writing to the IRS office that sent out the expense, calling 800-829-4933 or checking out a local IRS workplace. For additional information about IRS notifications, expenses and payment choices, refer to Publication 594, The IRS Collection Process PDF.