While large companies may be able to afford a large payroll staff, it is small and medium-size businesses that may have the most to gain from outsourcing the payroll process. Let’s take a look at some of the benefits to outsourcing payroll.

1. The Bottom Line. In-house payroll requires staffing. And not just any staffing but specialized professionals that understand the payroll process and the complexities of the tax code. Once the employees are paid then the withholding taxes to various levels of government must be taken care of. It is wise for a business to calculate the total cost of running their payroll process in-house and then compare it to a few quotes from payroll service providers. In most cases, you’ll find that the cost is lower with payroll specialists.

2. Specialization. It can be a nightmare to keep up with all of the tax and regulatory changes at the local, state, and federal levels. Or to deal with employees that have received incorrect paychecks. Payroll specialists do one thing and that’s to process payroll accurately and efficiently day-in and day-out. That means fewer headaches for the business owner/manager.

3. Fraud Prevention. The payroll function can be an easy target for those looking to defraud a business. Whether it’s padding a time card, increasing a pay rate, or adding in non-existent workers, payroll service providers have the tools to weed out fraud.

4. Tax Compliance. Government statistics from the IRS report that one in three employers have been assessed penalties due to mistakes made in payroll. These penalties can financially ruin a company if the mistakes are large enough but even small penalties come straight from the bottom line.

5. Peace of Mind. Just think of what you can do with the extra time you’ll open up by outsourcing the payroll function. Employees are happy when they receive what they are owed. The tax authorities receive their portion in exact amounts and on schedule, and, most of all, the business owner/manager has more time to manage the growth of the company. And that’s really what it’s all about.

If you would like to learn more on how a Professional Employer Organization (PEO) and an Administrative Services Organization (ASO) can save you time and money then visit Human Capital Strategies for more information. We are an outsourcing solution for payroll administration, human resources, benefits administration, and tax compliance. While you’re there, please take the time to sign up for our free monthly C.A.R.E.S Business Training Video Series.

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Don't let upcoming IRS audits worry you. (Image courtesy of FreeDigitalPhotos.net)

participate in a special audit by the IRS. This study, conducted by the IRS National Research Program (NRP) will study employment taxes. The purpose of the study is to gather data to calculate possible ‘employment tax gap’ issues and target areas that may be future problems.

Audit specifics
The audits will likely involve a thorough review of the Employer’s Quarterly Tax Returns for the targeted year(s). Other related documents may also be reviewed, possibly forms 1120, 1065 and more.

This will be the largest audit since 1984, and will take place over the next three years. The IRS will examine 2,000 businesses in each of those years. The businesses will be selected at random and will represent a large cross-section of U.S. companies.

There are five main areas that the IRS will focus on: worker classification, reimbursed expenses, officer compensation, fringe benefits and non-filers. It’s a good bet that the auditors may look at other details as they review the five targeted elements.

There is nothing that a company can do to prevent being chosen for the audit, but there are steps that they can take to help make possible audits, future filings and compliance easier.

Review payroll services
Small business owners should review the current payroll practices, focusing on the five areas that the NRP have identified as their specific focus. Review the three most recent years’ employment tax returns, the filing documents and supportive records. A third party payroll service expert can help with this process.

If your company is selected, follow these steps:

• Designate a company representative who is responsible for IRS communications
• Early in the process, retain a payroll service and tax expert
• Request time to respond to IRS requests

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