How to ... choose a payroll services provider

Daily Record and the Kansas City Daily News-Press, Aug 6, 2006 by Bernadette Starzee

Many companies think it pays to have someone else handle their payroll. Managing payroll, after all, can be time-consuming, especially if you have a high employee-turnover rate, if your employees are paid different amounts each pay period or if they live in different states.

Payroll services providers calculate paychecks and taxes for each employee and print and deliver checks. They can provide automatic check signatures and W-2 forms and handle direct deposit as well. In addition, they can file your payroll taxes for you.

If you handle payroll yourself, you have to know how to calculate taxes, which many firms rely on their certified public accountants to do. You have to keep on top of changes in tax regulations. Any mistakes can result in penalties, so it's important to get it right.

Before you interview payroll services firms, think about what services you're in the market for. When you get price quotes, make sure the quotes include those services, so you can compare apples to apples. Some companies may include more services than others in their basic packages. Some may charge extra for features like direct deposit. If you're not sure what services you want, ask providers what's in their basic packages, what their most popular add-on services are and what they cost.

Payroll firms may charge a flat fee in addition to per-check fees. Naturally, if you do payroll every week, it will be more costly than if you pay your employees twice a month.

Because payroll is such a sensitive area, it's vital that you choose a reputable and highly professional payroll services firm. If your employees discover errors in their paychecks, it can severely shake their confidence in your company. Ask the employee services firms you interview for a few references from companies with about the same number of employees as yours. Inquire about the payroll services provider's accuracy, professionalism and customer service. For instance, when the client had questions, how quick was the provider to respond?

When you interview payroll service providers, ask them how quickly they can provide new checks if mistakes are made. If you use the firm to file taxes, find out upfront whether they will pay penalties resulting from errors they make. In addition, ask whether they will provide services for local taxes in addition to state and federal taxes.

You will want to ask the firm about your options in receiving reports. For instance, they may provide you with regular printed reports or with data on CD, from which you can generate specific reports as needed. Or you may be able to access your company's payroll information over the Internet. Your employees may even be able to access their individual payroll history online.

For every pay period, you have to provide the payroll services firm with information, such as how many hours employees worked, who took vacation or sick days and about any new hires. This can be done by phone or electronically.

Unlike some professional services, payroll is one in which you will have regular contact with the provider throughout the course of the year. Before you sign on the dotted line, find out who will handle the customer service on your account. Be sure you are comfortable with this person because you will deal with him on a regular basis.

This article was originally published in Long Island Business News, another Dolan Media publication.