What Are the Benefits of Using Payroll Services?
In addition to being time-consuming and difficult to understand, payroll services can be overwhelming to handle alone. Outsourcing payroll services means that an outside organization manages payroll. Having trained professionals handle your payroll means the responsibility of making your payroll function meet the needs of your employees, business, and the law no longer falls on the company or its executives. There are a number of benefits of using payroll services:
A small business will just submit hours, deductions, and salaries to the outsourced payroll provider and they take care of the rest.
Most payroll services are able to expand capabilities outside of an internal team like giving the business access to direct deposits and employee retirement plans. The majority of payroll services will also prepare W2 forms for their clients, calculate employee tax obligations, and provide management reports.
Because payroll services specialize in payroll, they have quality assurance processes that keep payroll accurate and on time.
Payroll is subject to a wide range of state and federal legal requirements that are constantly changing from state to state. An outsourced payroll company can save you money on legal fees and ensure compliance is handled by a business that specializes in understanding these issues.
Processing payroll is a process that is often underestimated by small business owners and CEOs alike. The benefit of using payroll services is the time saved and the potential for mistakes.
There are a lot of steps and details involved in executing payroll accurately, on time, and in compliance:
Keeping track of the time your employees spend on the job is essential for running payroll. This includes regular hours worked, time off, and possible overtime hours. Retaining employee hours is an important part of ensuring you are paying your employees the right amount.
Calculating employee’s gross wages
Depending on the nature of your business, you may have salaried employees, hourly employees, or both. The gross wage of each employee can be calculated once you know the number of hours they worked.
- To calculate your salaried employees’ gross wages, divide the number of pay periods in the year by their annual salary.
- To calculate your hourly employees’ gross wages, multiply their rate of pay by the number of hours worked in the pay period.
If an employee has additional pay sources, including tips, commissions, or bonuses, you must include them in payrolls.
Subtract taxes and other deductions
Withholding taxes and other deductions from employees’ gross wages is one of the most important and challenging parts of payroll.
Identify the employee’s pre-tax deductions first. In that case, deduct them from an employee’s gross pay before calculating taxes.
Calculating the employee’s withholding is the next step. You must deduct the following taxes from an employee’s pay:
- Federal income tax
- Social Security tax
- Medicare tax
- State and local income taxes
- State-specific taxes
Employers are also responsible for paying employee taxes. Social Security, Medicare, federal unemployment taxes, and state unemployment taxes are all included in employer taxes.
In the case of an employee with any post-tax deductions, withhold those after the employee’s taxes have been calculated.
The employee’s net pay is determined after subtracting taxes and other deductions from their gross wages. Make sure your information and calculations are accurate before paying employees. Employees will be paid as soon as payroll has been approved. You might pay employees via Direct deposit, Paychecks, Mobile wallet, Pay cards, and Cash.
Your employees should also receive a paper or digital pay stubs when they are paid. As a result, employees will be able to view and keep track of their payroll information.
File and deposit taxes
Think payroll ends when employees are paid? That’s not the case. The IRS, as well as your state and local governments, must also be contacted for tax filing and deposits.
The IRS requires you to deposit your federal income taxes, Social Security taxes, and Medicare taxes. Deposits must be made monthly or semi-weekly, depending on your deposit schedule. Employers are required to file Form 941, Employer’s Quarterly Federal Tax Return, or Form 944, Employer’s Annual Federal Tax Return, in order to report the taxes.
Depending on the tax agencies’ rules, deposit state and local taxes. In addition, deposit and file employer-only taxes, such as the federal unemployment tax and the state unemployment tax.
Keeping important records and information safe
It is required by the Fair Lab or Standards Act (FLSA) and the Internal Revenue Service (IRS) that you keep detailed records for a few years.
- Timecards and other records on which wage computations are based should be kept for at least 2 years.
- Payroll records should be kept for at least 3 years
- Employment taxes should be kept for at least 4 years
Each year, you must keep detailed records not only to satisfy FLSA and IRS requirements but also to complete Form W-2, Wage, and Tax Statement.
Not only can payroll be burdensome on an internal team, but there is also no margin for error in payroll processing services. That is why we recommend investing in not only payroll software, but a payroll service to go with it. At Milestone, our focus is on helping our clients and meeting their needs, especially when it comes to outsourcing payroll services. Get in touch with Milestone today to find out more about what we can do for you.
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