When you’re running a business, you have two main choices for paying your employees: You can do it yourself, or you can hire a payroll service to do it for you. If you don’t have an accounting background and aren’t well versed in payroll tax laws, then a payroll service is likely your best option.
Before you choose a payroll service, it’s critical to understand the tasks a payroll provider can handle, how much these services cost, the benefits they offer and what to look for when choosing one. Some small businesses choose to use local payroll services that operate in their region, while others elect to use online payroll services accessible from anywhere. This guide focuses on online payroll services only.
Online payroll services operate in the cloud and allow businesses to manage and run payroll from anywhere. Online payroll services typically offer the following services:
Online payroll services automatically calculate how much employees should be paid each pay period and deposits the funds via direct deposit or check.
These services withhold employee taxes, file quarterly payroll tax reports and pay tax withholding’s to the proper state and federal agencies. In addition, they issue employee W-2 and 1099 forms at the end of the year.
Online payroll services complete all of the required reports that must be filed with federal, state and local governments. In addition to sending those reports in on time, some services offer businesses the ability to review them online.
Many services report new hires to the government for you. Integration: Most online payroll services integrate with accounting software. This gives businesses the ability to keep more accurate financial records.
Paid time off:
Many of these services keep track of employees’ paid time off. These features also allow employees to request time off and let employers approve or deny it.
Some online payroll services offer tools to manage health insurance plans, flexible spending accounts and transit reimbursement plans.
Retirement services: Some online payroll services have systems that make it easy for businesses to set up and monitor 401(k) and IRA retirement plans, and for employees to control their contributions.
Pros and cons:
The biggest benefit of online payroll services is that all of the work — payroll calculations, payroll tax payments, year-end tax forms, etc. — is completed for you. This saves you a ton of time and effort. Typically, the only task you need to complete each pay period is to provide the hours worked in each payroll period. One downside is that using an online payroll service is more expensive than handling payroll on your own. Another potential negative is that you are entrusting the payroll provider you choose to get everything right. If the provider makes a mistake, you may face a rash of angry employees or a fine from the government.