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Payroll administration is more than just writing and delivering checks; there are multiple tax laws and regulations that need to be considered and followed. Many people feel overwhelmed by the amount of work payroll requires, especially when it comes to compliance. Luckily, payroll companies are there to ensure that all of your payroll is compliant with state and local laws and fix any existing issues.
What Is Payroll Compliance?
Simply put, payroll compliance is the activities of payroll, including the calculation of pay, any deductions, and dispatch of pay in conformance with all legal rules and regulations. This means that every aspect of the payroll process is done in accordance with the proper tax and wage laws, every step of the way. Compliance protects you against both legal consequences and heavy fines.
Common Payroll Compliance Issues
There are a number of issues that could cause your payroll to be out of compliance, some of which include:
- Failure to maintain records: Payroll involves a lot of paperwork, which is difficult to keep track of. However, compliance laws require you to keep consistently maintained records for all active employees as well as those who have left your employ within the last three years, at least. Requirements vary from state to state, but failing to maintain your records can easily get you into trouble with state tax agencies and the IRS.
- Forgetting forms: Again, there is a lot of paperwork involved with payroll and missing a page or a section has consequences. The forms you need to fill out and submit vary based on the size and type of your business, but you need to know exactly what you should be sending out, to whom, and when.
- Miscalculating overtime: This seems as if it shouldn't be an issue, but miscalculating overtime is fairly common. Many people think it is as simple as multiplying the standard hourly rate by the overtime pay (which is usually time-and-a-half, so hourly wage multiplied by 1.5). But this fails to take bonus pay, commission, stipends, and other compensation into consideration. Underpaying employees can get you in trouble with tax agencies and land you in court.
- Misclassifying employees: Classifying employees incorrectly is a good way to get yourself in trouble. The IRS has started cracking down on employers who incorrectly classify regular staff as independent contractors. A worker is only an independent contractor if the employer does not control the means by which their final project was made.
In addition to ensuring your payroll is compliant, service take care of any existing issues. Methods for this include:
- Compliance management: Payroll service companies manage all or most aspects of the payroll cycle and ensure that all forms are filed properly and promptly. A combination of software and service keeps all of your payroll processes in compliance with the latest tax laws and regulations.
- Integrating software: A software that integrates all of your payroll functions simplifies and streamlines the process, allowing all information to be handled properly, faster. Payroll companies usually offer multiple types of software that can be integrated to provide a total solution.
- Timekeeping: An accurate and efficient digital timekeeping system is the ideal way to eliminate employee work-hour problems. This is usually offered as a part of the base package from most payroll companies and ensures that all reported employee hours are accurate.
How Much Do Payroll Services Cost?
Estimating payroll service costs is difficult. The size and type of business you have affect price, as do the number of people you employ and services you select. What follows is a general pricing guide to give you an idea of what you can expect to pay for payroll services.
- Many payroll companies charge a setup fee of around $25 on average.
- Year-end W-2 processing typically costs between $40 and $50, plus another $5 to $7 per employee on average.
- ADP charges between $8 and $12 per employee, per pay period, for up to 10 employees.
- Ceridian offers a complete payroll and benefits management option that starts at around $11.50 per employee, per payroll cycle.
- Intuit's Basic Plan has a base cost of $20 per month plus $2 per employee. The Enhanced Plan costs around $32 and the Full Service Plan costs around $80 per month, both with the same additional $2 per employee charge.
- JustWorks offers discounted pricing if you buy annually. For example, payroll for up to four employees costs around $80 per month, per employee when billed annually and around $100 per month when billed monthly.
- Paychex charges between $25 and $30 per employee for up to 10 employees, plus an extra $15 if you choose direct deposit.