Payroll 101: What Are Payroll Services?

Payroll 101: What Are Payroll Services?

Employees are typically paid at a rate which is set by a time period basis. In the U.S. employers are required to pay for employee benefits such as Medicare, worker’s compensation, Social Security, and federal or state taxes. Employers are also responsible for deducting a part of these taxes and fees from the paychecks of each employee, and each transaction must be recorded for audits and taxation.

How Payroll Services Work

Payroll services can come in the form of institutions, personnel or even Software-as-a-Service (SaaS) that will perform payroll procedures for a fee. They will often handle all the employee benefits, as well as taxation on behalf of the company. This frees up the time of the business owner, allowing them to concentrate on their core business goals. After the business owner has created an account with the payroll service, the business owner will then provide a list of their employees, along with the hours they’ve put in and other necessary details.

The payroll service will then process this data and funds will be sent from the employer’s bank account to the account of the payroll service. Employees will then be paid through either a check or a direct deposit. The payroll service will then send tax reports and payroll details to the employer.

Additional Features Offered by Payroll Services

Many payroll services today offer the option of managing the benefit administration for a company. They can track the vacation time of employees, as well as the days when they go on leave. Payroll services may also assist in the management of the employer’s taxes, as well as handling labor management or pre-screening. These services frequently handle the paperwork which is needed for the direct deposit of paychecks for employees.

The fees charged by payroll services will depend on how large the account is, as well as the services which are requested. Most payroll services use a pricing structure which charges a fee for each employee, as well as a separate fee for each check that is issued.

The Advantages and Disadvantages of Payroll Services

The biggest advantage of payroll services is that they remove the administrative burden that would otherwise be carried by the company. Managing payroll, taxes, worker’s comp and other benefits can be time consuming and tedious, and outsourcing the work to payroll services gives the employer time to deal with other more urgent matters that allow facilitate the growth of the company and revenue generation more directly.

At the same time, we have to acknowledge there are inherent risks involved with having an outside entity manage payroll and other sensitive data. Many payroll services today are computerized, and cyber security has to be flawless so that data will not be compromised. The records provided by employers to payroll services are highly confidential, and should they fall into the wrong hands, the consequences could be devastating. Finally, if for some reason a payroll service fails to pay the employer’s taxes on time, the employer will be held liable and forced to pay fines.

Therefore, it is absolutely critical that employers exercise caution when selecting a payroll service, and they should ensure that the payroll service is reputable while maintaining an excellent track record.