Though different payroll services will perform different functions and cater to certain industries, most companies operate in essentially the same manner. Payroll outsourcing shifts payroll processing functions to a third party. A payroll company can compute employee hours worked, calculate employee tax withholding information, and transfer appropriate funds employee savings accounts or bank accounts. Payroll processing companies write checks or use direct deposit to pay employees, and provide W-2 forms at the end of the year.
Most payroll processing companies will set up an account for your business that can accept automatic deposits right before payday. These funds will be used to pay employee wages and taxes, and also to pay processing or service fees assessed by the payroll company. Setting up an account takes very little time. The bulk of the setup process is usually devoted to transferring employee information to the payroll company. The company will need all relevant employment forms- W-4s, I-9s, or other applicable tax documents. If using direct deposit, employees will need to provide banking information. If you offer savings accounts, cafeteria plans, health insurance, or other benefits to employees, you’ll need to collect account information for these functions, as well. The payroll vendor will specify exactly what they need to set up the account.
Once the company has collected the necessary information, you will set up a procedure for collecting employee pay information at the conclusion of each pay period. You’ll need to communicate work hours, sick and vacation time, and savings plan information. The easiest way to do this is online- several companies use secure websites that allow you to input this information and send it a few days before checks will be processed. This feature is also a bonus for employees, who will have access to online accounts as well. Employees will be able to make changes to savings accounts like IRAs and Health Savings Accounts, and can amend W-4s online if needed. Some companies allow you to “call in” payroll over the phone. The amount of time needed to calculate pay is different for every company, so make sure you know the procedures before choosing a payroll company.
After you’ve chosen a payroll company, provided your information, and set up your account, you can start using the service. Most vendors offer a “trial run” before a contract is signed, to allow you to get familiar with the procedures and test out the service. Make sure you know exactly how the system will work before “going live.”
It’s common for a company to require a “reserve” account for payment of taxes and employee pay in case a regular (bi-weekly or monthly) automatic deposit is not received on time. Most providers will charge fees for late deposits. Charges are usually assessed per check, per transaction, or per employee- every company is different. These service fees will be automatically deducted from your account as they are incurred.