Outsourcing Payroll Duties

Outsourcing payroll tasks can be a sound service practice, but … Know your tax obligations as an employer

Many companies outsource some or all their payroll and related tax duties to third-party payroll provider. Third-party payroll company can enhance organization operations and help meet filing due dates and deposit requirements. Some of the services they provide are:

– Administering payroll and work taxes on behalf of the employer where the employer supplies the funds initially to the third-party.
– Reporting, gathering and depositing employment taxes with state and federal authorities.

Employers who contract out some or all their payroll obligations must think about the following:

– The company is eventually accountable for the deposit and payment of federal tax liabilities. Despite the fact that the employer may forward the tax totals up to the third-party to make the tax deposits, the employer is the responsible party. If the third-party stops working to make the federal tax payments, then the IRS may evaluate penalties and interest on the employer’s account. The company is liable for all taxes, charges and interest due. The company might also be held personally accountable for particular overdue federal taxes.
– If there are any problems with an account, then the IRS will send correspondence to the employer at the address of record. The IRS strongly suggests that the company does not alter their address of record to that of the payroll company as it might significantly restrict the employer’s capability to be informed of tax matters including their company.
– Electronic Funds Transfer (EFT) need to be utilized to transfer all federal tax deposits. Generally, an EFT is made using Electronic Federal Tax Payment System (EFTPS). Employers ought to guarantee their payroll suppliers are utilizing EFTPS, so the companies can validate that payments are being made on their behalf. Employers must register on the EFTPS system to get their own PIN and utilize this PIN to periodically confirm payments. A red flag should go up the very first time a provider misses a payment or makes a late payment. When a company registers on EFTPS they will have on-line access to their payment history for 16 months. In addition, EFTPS permits companies to make any additional tax payments that their third-party service provider is not making on their behalf such as approximated tax payments. There have been prosecutions of individuals and companies, who acting under the look of a payroll provider, have stolen funds intended for payment of work taxes.

EFTPS is a protected, accurate, and simple to use service that an instant confirmation for each transaction. This service is used free of charge from the U.S. Department of Treasury and enables companies to make and verify federal tax payments digitally 24 hours a day, 7 days a week through the web or by phone. For more details, employers can enroll online at EFTPS.gov or call EFTPS Customer support at 800-555-4477 for an enrollment type or to consult with a customer care representative.

Remember, employers are eventually responsible for the payment of earnings tax kept and of both the employer and worker portions of social security and Medicare taxes.

Employers who think that a bill or notification received is an outcome of a problem with their payroll provider must call the IRS as soon as possible by calling the number on the bill, composing to the IRS office that sent the expense, calling 800-829-4933 or checking out a local IRS workplace. For more details about IRS notices, expenses and payment choices, refer to Publication 594, The IRS Collection Process PDF.