Taking on payroll and tax compliance without the assistance of a third-party payroll provider can be a huge burden for your business.
By Michelle Lanter Smith
Not only does it take a lot of time, but it can leave your company vulnerable to costly errors and compliance fines. To make matters worse, new tax rules and payroll regulations are continuously changing at the federal, state and local levels every year, making it even harder to stay in compliance.
If you truly want to reduce your chances of audits and litigation, using a third-party payroll provider is well worth any additional cost when you account for the potential fines, penalties, and poor employee morale caused by payroll errors. Here are some of the most common payroll and tax obstacles employers face and the solutions that can resolve them.
Common Payroll and Tax Struggles
Calculating Overtime: The FLSA requires employers to pay all non-exempt employees time and a half compensation for hours worked over 40 each week, and yet, it’s never quite that simple. Things like blended overtime, when an employee works at two or more rates and requires a weighted average to calculate pay, can more than complicate your calculations.
Miscalculating overtime can impact employee morale and increase your risk of DOL investigations or employee lawsuits, especially if you’re underpaying members of your workforce. Not only are you subject to back pay and fines, but you can also be subject to paying out punitive damages as well.
The benefit of using a third-party payroll provider is that they reduce this risk significantly. They track when an employee has crossed the threshold into overtime, they adjust gross pay accordingly, and reconfigure all OT rates and taxes so that your records and payroll are precisely accurate. They handle blended pay rates and overtime for you, so you don’t have to worry about getting it wrong.
Calculating Taxes Correctly: Similarly, tax calculations are difficult because there are so many unique factors which may affect them. State and local tax laws are particularly challenging. Depending on where your operations are located, strict state regulations concerning withholdings, unemployment taxes, and workers’ compensation vary and are continuously subject to change. With so many moving parts to keep track of, it’s easy for HR professionals to let compliance changes and filing details inadvertently slip.
Third-party payroll providers utilize systems with built-in tax engines to continuously update tax rules. They make it easy to generate tax filings accurately across federal, state, and local jurisdictions—even when employees work in multiple states or perform multiple roles –a third-party payroll provider can offer safeguards you may not be able to achieve on your own.
Filing on Time: It may sound obvious but keeping filing deadlines straight – especially if you have employees in different states and jurisdictions – is no easy task. Missing a filing deadline can lead to frustrations for your employees and fines for your company.
Third-party payroll providers notify you when deadlines are fast-approaching and file all of the forms with the IRS for you to ensure they arrive on time.
Ensuring that your employees get paid correctly and on-time is your main objective when it comes to payroll. To obtain the results of a full team of HR professionals—without incurring the cost of hiring additional employees—outsourcing can give you the full support your business needs and the hassle-free, time-saving results you deserve.
Michelle Lanter Smith is the Chief Marketing Officer of EPAY Systems, where she oversees the company’s go-to-market strategy, customer success and technical support operations. EPAY offers fully-integrated payroll and tax management services as part of the full Human Capital Management solution, including accurately handling all payroll and tax processing, accommodating multiple FEINs, processing garnishments, performing year-end tax filings, generating new hire reports, and managing pay card programs.