Payroll Services

By Dylan Mazeika

Your first step will be to evaluate the complexity of your payroll system. If your employees work varying amounts of hours each week or if you pay employees who reside in multiple states, it may make sense to consider payroll providers that are current on differences in state tax regulations.

It is also important to review the support services offered by a payroll provider. All payroll service companies offer similar core services: calculating payroll and tax obligations for each employee, printing and delivering checks, and providing management reports. Payroll services can handle business for pay periods that run weekly, biweekly (every other week), semimonthly (twice a month) or monthly.

Beyond these basic transactions, a payroll service company can provide other related services at an additional cost. These costs can add up quickly, so be clear on which features are offered, if they are available in packages, and if they match your company's needs.

The three general categories of added-cost payroll options are payroll distribution, data collection, and benefit management features.

Payroll distribution

Payroll services offer a number of options surrounding actual distribution of your payroll come payday. You'll want to pick and choose which of these is right for your employees.

• Automatic check signature: A computer-generated signature is printed on each check, eliminating the need to sign them manually. Even if you take advantage of this option, you can still choose stuff the envelopes and distribute the checks yourself.


• Direct deposit : Services can also transfer payroll funds directly into employee bank accounts, issuing a voided payroll statement instead of an actual check to each employee. Highly regarded for its convenience and security, direct deposit is one of the most popular options of payroll services.


• Debit cards: This option allows employees that do not have checking or savings accounts to receive an "access" card in the dollar amount of their paycheck. Employers don't have to print paychecks for employees that can't take advantage of direct deposit. Employees can make purchases and withdrawals. However, the employee is charged for each transaction, with the amount dependent on the service provider you choose. When using this option it is important to receive payroll registers at least a day before payday, to catch mistakes before they are transferred to your employees' accounts.


• Paycheck delivery: You have a choice of delivery options for the checks, including first class mail, overnight delivery, or courier service.

Data Processing/Reports Management

By definition, data processing is how your company's payroll information is processed. Companies with hourly workers, for example, may have employees swipe time cards through machines so that hours are automatically calculated and easily transferred to the payroll service.

Another option is to use an electronic time sheet, which can be saved to disk and given to the payroll service provider for processing.

To help keep track of this data, payroll services can issue reports summarizing each payroll period. Most reports include information such as payroll totals and tax totals for each employee, in addition to total payroll and tax obligations.

Benefit Management Features

In addition to the payroll-specific services currently offered, many service providers offer an ever-expanding menu of services to enhance and facilitate employee benefits, including:

• 401(k) plans
• Employee manuals
• Integrated HR systems
• Employee assistance programs

Implementation

Even if you outsource your payroll, you will still need to be involved in its processing. Before each payday, you will need to let the service know of any changes that will affect the upcoming payroll. These changes can include information such as number of hours worked for hourly employees, changes in tax status, new hires, or terminations.

Therefore, the relationship you develop with your payroll service to transmit information is critical. Will you transmit payroll data by phone, fax, modem, or email? What type of schedule should you set up to allow the proper time to issue checks? It is also extremely important to keep a paper trail of all this information to provide a backup for any calculations conducted by the payroll service.

Pricing

The cost of payroll services has three parts: a monthly fee, a fee per employee paycheck, and sometimes an annual fee for tax filing or other features. Take a look at what other BuyerZone users found for payroll services costs to get an idea how these fees add up.

• Per-check fees: Per-check fees range between $0.80 to $2 per check, while base account fees vary according to frequency of payroll periods and the number of employees you need to pay. Less frequent pay periods cost more initially, but are usually cheaper over the long term.


• Base account fees: Your base account fee also typically includes notification of your federal and state tax obligations, while tax filing is available for an additional cost. Tax filing fees vary according to the service, with an average of $5 per payroll period. Generally, you can expect to pay about $1 per year-end W-2 issued. Checks are usually processed and ready within 24 hours.


• Add-on features: From tax filing to 401(k) administration, payroll providers are forever expanding their menu of offerings to their customers. You should take a look at all these options beforehand to get a sense for your total needs.

Knowing what you'd like to outsource in addition to bare-bones payroll processing helps you in two ways. First of all, it helps to define your base pricing so a la carte options don't end up driving your costs up. Secondly, if you start out with the menu of options that you need, you can avoid having to change your service mid-stream, which can be expensive.

Similarly, watch carefully for very low first-year pricing with these add-on services. It's another common trap to increase rates substantially for these services after six months or a year. Before signing on the dotted line, make sure to nail down any pre-scheduled price increases.

Choosing a Provider

Be clear on what type of payroll management system reports will be issued regarding your payroll data. Make sure they are easy to read, and that you understand all of the calculations being processed. Don't be afraid to offer suggestions that take into account how you work best, so the payroll management can match your needs and keep your mind at ease.

Most important, interview the references of any payroll services provider thoroughly. If you can, go on the recommendation of a colleague. The service needs to be ready and responsive to all of your questions and concerns, so be sure to ask other customers how they view the company's responsiveness rate and accuracy when dealing with problems.