Tips for Businesses That Outsource Payroll Duties

Many employers outsource their payroll and related tax duties to third-party payers such as payroll service providers and reporting agents (often referred to as service bureaus). Reputable payroll service bureaus can help employers streamline their business operations by collecting and timely depositing payroll taxes on the employer's behalf and filing required payroll tax returns with state and federal authorities.

Though most payroll service bureaus provide very good service, there are, unfortunately, some who do not have their clients' best interests at heart. Over the past year, a number of these companies have been prosecuted for stealing funds intended for the payment of payroll taxes. So, a thorough background investigation is essential.

There are several different types of payroll service bureaus. Regardless of the type your business uses, it's important to understand that the service bureau is only acting as an agent. This means state and federal tax authorities will hold you - the employer - responsible for the service bureau's errors or omissions.

Like employers who handle their own payroll duties, employers who outsource payroll duties are still legally responsible for any and all payroll taxes due. This includes any federal income taxes withheld as well as both the employer and employee's share of Social Security and Medicare taxes. This is true even if the employer forwards tax amounts to the service bureau to make the required deposits or payments.

If you use a service bureau to process some or all of your payroll functions, here are some steps you can take to protect the company from unscrupulous service bureaus.

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