Payroll services help free up time for building business

by John Qua

for the Business Journal

Payroll and payroll-tax preparation can be a time-consuming chore if you undertake it yourself. In fact, the complexity of today's tax laws increasingly exposes small-business owners to the threat of payroll-tax penalties.

Most businesses are required to file more than 40 payroll-tax returns a year, according to Paychex, a Rochester, N.Y.-based payroll-services company. To make matters worse, about 400 revisions are made to payroll-tax laws each year, making it difficult for small businesses to keep up with legal requirements.

You may be spending valuable time addressing the legal requirements of your payroll and employee record-keeping systems that could be better spent on building your business. That's why many business owners look for outside help.

Payroll service advantages.

Relying on an outside provider can be an easy and cost-effective way to do your payroll. Typically, a payroll processor will provide its services in exchange for an annualized fee based on the number of people you employ and the payroll services you select. Here are some of the standard features to look for from a payroll processor:

?Completed payrolls. Payrolls should be ready for your signature and distribution to employees consistent with your pay period.

?Employee earnings statements. These documents should include current pay period and year-to-date wages, taxes and adjustments.

?Payroll journals. These records will detail current payroll obligations.

?Department summaries. You can keep track of month-to-date payroll data.

?Worksheets. Payroll worksheets enable you to record employee time and attendance hours, and any adjustments.

?Funds notice. You should be notified of funds that are needed for payrolls and taxes.

To simplify your role, look for a service that allows you to share data by computer. If you are connected via modem to your payroll processor, you can simply key in your payroll data and send it electronically for fast and accurate payroll processing. In return, you can receive all payroll reports and associated paperwork by computer.

Payroll payment options.

Small-business owners have shown an interest in two other features direct-deposit service and local check-writing services. When you're evaluating a service, ask whether it can accommodate employees who wish to receive their pay via deposit of funds directly into their checking, savings or central-asset accounts. In addition, you might want the capability of providing paychecks that are drawn on local accounts.

Another payment option that is convenient for employees is a direct-deposit money card. This allows employees to have their pay deposited in an account set up for them by the payroll servicer in which their funds are accessible 24 hours a day via an ATM withdrawal card. The card does double duty if it is connected with a major credit card company and can also be used for purchases wherever the credit card is accepted.

Link payroll to a central asset account.

The more integrated your cash-management systems, the more efficient your business operations will be. When you're looking for payroll services, ask whether you can link your payroll to your business' central-asset account. This will provide a number of advantages.

If you offer direct deposit of paychecks, you'll have a convenient and secure way to pay employees from your central-asset account. Reconciling your payroll account will be a simple matter of making one entry and your money is working for you until it's needed.

Issuing paper checks won't be a problem, even if no local banks have established a relationship with your payroll servicer and local check-writing is not available. Checks can be issued from the central-asset account using your employee's checking account number.

If you choose to, you can have your payroll service fees deducted directly from your business central-asset account. This will spare you the time and effort involved in paying monthly service fees by check.

Payroll tax preparation.

The tax payment and reporting obligations that accompany your payroll can present an even bigger headache. If the job is not done according to all federal and state tax laws, you could unintentionally face harsh tax penalties.

An outside payroll specialist can ensure that your tax obligations are met with no threat of error and penalties. Your monthly, quarterly and annual payroll tax returns and deposits will be automatically filed with the appropriate government agencies, accurately and on time, including year-end W-2 forms.

Payroll tax preparation may become a more pressing issue for you if you are among the businesses the federal government has targeted for its Electronic Federal Tax Payment System (EFTPS). A provision of last year's Taxpayer Relief Act requires all businesses with federal tax deposits in excess of $50,000 (including income tax, payroll tax and/or excise tax) to start using the EFTPS July 1.

Your payroll tax preparer should have the capacity to allow you to meet this new federal requirement. If your payroll service is linked to your central-asset account, the EFTPS mandates could be met through electronic payments directly from the account.

Consider payroll assistance.

You owe it to your business to consider any services that can cut down on the time and money you spend on administrative tasks.

A payroll-processing service can provide an easier, more cost-effective way to complete your payroll.

Talk with your financial consultant about how to combine the benefits of professional payroll-processing services with your central-asset account.

(John Qua is senior vice president and director of business financial services for Merrill Lynch.)

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