Payroll Services Guide - part 1

This short guide was created to help you understand the basics of payroll services and how to find the best payroll service for you. We do not offer any payroll services ourselves, so you can be assured that all of the information in this guide is independent and unbiased.

In this guide

Background on payroll services

Every business or organization that has employees is obligated to follow certain Federal, state and local laws and procedures regarding payroll-related issues. Every employer is responsible for withholding the appropriate taxes (Federal income tax, Social Security, Medicare, Federal and state unemployment taxes, state and local income taxes, state disability taxes, etc.) from their employees' pay, depositing these taxes into the appropriate accounts, paying the appropriate taxing agencies, and filing all of the associated returns.

In addition to the Federal, state and local tax laws, there are other regulations, such as the Fair Labor Standards Act (FLSA) that define wages, overtime regulations, equal pay, tipped employees, that need to be complied with. As anyone who has ever even done personal taxes can surmise, employer payroll reporting requirements are often complex and confusing, and employers must be alert to the different rules that apply in each case. There are additional regulations that make some mistakes (like not paying the appropriate withholding taxes) that can even result in criminal prosecution.

Employers have two main options when it comes to handling their payroll functions - an in-house department or staff, or an independent payroll processing service. For small companies without the expertise or resources to handle the payroll function in-house, it makes a lot of sense to hire an independent payroll services company. Not only can this be cheaper, but it can allow the small business to focus on its core competencies and reduce the chance of potentially costly payroll-related mistakes. Outsourcing is not limited to small businesses as many Fortune 500 companies outsource at least some portion of their payroll functions.