Typically, employers have two basic
payroll processing options - use an in-house method or outsource
the work to an independent payroll service.
In-house methods
Payroll can be processed in-house using either a manual process or
a payroll software program. Employee payroll obligations, payroll
deductions, and payroll tax obligations are calculated, checks are
written or generated, and payroll-related information is recorded
or updated to the general ledger. In most cases, taxes are filed manually.
Some employers hire an accountant who specializes in payroll, sometimes
only for the purposes of calculating or filing of the payroll taxes.
Independent payroll service
Payroll service bureaus provide payroll functions that range from
basic calculating of employee payroll and tax obligations, producing
checks, and preparing management reports to optional services such
as filing payroll taxes, preparing W-2s, 401k processing and union
reporting.
What method is right for you?
The payroll method that's right for you depends, to a degree, on
the complexity of your payroll and the actual time and resources
it takes to prepare it.
Here are some key factors employers should consider:
• training personnel to perform payroll-related responsibilities
• use of personnel for payroll versus other business tasks
• gathering payroll-related information
• wage and hour calculations
• federal and state tax calculations
• posting payroll data to general ledger
• tracking payroll tax deposit due dates
• researching changes in federal and state payroll tax rules
and legislation
• calculating ongoing tax liabilities
• calculating and filing payroll tax returns
Employers using an in-house payroll software program should
consider:
• cost of the software
• cost to train personnel to use the software
• use of personnel for payroll versus other business tasks
• cost to purchase software updates
• cost of hardware (less depreciation) and related
maintenance costs, if using a dedicated or shared payroll computer
system
Advantages of Independent Payroll
Focus
By using an independent payroll service, an employer can better
focus on what they do best -- running their business.
Accuracy
A top priority of any payroll service is ensuring the accuracy of
the payrolls they process. Staying current with tax laws and tax
computations is a vital part of their business.
Confidentiality
Payroll services reduce the risk of exposing confidential payroll
information to unauthorized personnel.
Convenience
Outsourcing makes payroll fast and easy. In general, all an employer
has to do is gather and communicate payroll information to the payroll
service.
Flexibility
An employer has access to a greater number of services. This has
become increasingly important, as administration of other functions
(for example, insurance, retirement plans, direct deposit) have
become part of the payroll process.
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