Why do I Need a Payroll Service?
Payroll is a lot to take on with frequently changing tax laws and requirements. If there’s one thing you should outsource to keep you from turning your shop into a financial punching bag, it’s payroll. Easy payroll solutions for your business are available with Payline, see which options are best and save money with us.
Hundreds of millions of dollars go to plaintiffs in class action settlements each year over alleged wage theft and employee misclassification. And it’s not just mega-sized companies like McDonald’s, Wells Fargo, and Microsoft who lose. According to the IRS, about a third of small to medium-sized businesses rack up tax penalties every year due to payroll errors. And that’s on top of what it takes to fix those errors. Even if it’s an honest mistake, you may be responsible for extra expenses that you never considered.
When it all comes down to it, you’re responsible for calculating hours, adding in overtime, and making sure you withhold the appropriate amount of taxes for each person who works for you. Now repeat that exercise every week or two, depending on how often your employees get paid. There are lots of payroll regulations to understand and follow. And just when you think you’ve got it under control, they change the rules, or there’s a once-in-a-century global pandemic.
Common Payroll Mistakes
If you’re still not convinced, check out this list of things that can quickly go wrong if you try to take on payroll services yourself.
Misclassifying employees: One of the most common and expensive errors occurs when you classify your employees incorrectly. Some of your employees may be full-time, and some may be independent contractors that aren’t eligible for overtime and certain company perks and benefits. Many companies work with both, especially when their work volumes fluctuate during different times throughout the year. You may also choose a contractor or consultant to work with you on projects that require a particular skill set that your team doesn’t have.
However, if you begin to blur the line between the two, it could spell trouble. For example, you don’t need to pay minimum wage or overtime to a contractor, but you also can’t require them to adhere to a schedule or specific sets of procedures. You can’t require them to be on-site during certain hours. An independent contractor needs to invoice you instead of punching a time clock, and technically, they’re free to work for any number of additional clients. You don’t withhold employment taxes from their wages, but you must provide a 1099-form to them at the same time you issue W-2 Forms to your full-time employees.
There are also exempt and non-exempt employees. Exempt employees are on a salary, so you aren’t required to pay them overtime. Non-exempt employees are paid by the hour, are eligible for a set number of breaks, and are entitled to overtime pay. You may offer the same benefits to both exempt and non-exempt employees, and you are responsible for making sure that you are covering the costs for benefits promised.
According to the IRS definition, “the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.”
Mistakes don’t just cost you time; they can cost you money:
- Penalty for classifying a non-exempt employee as exempt: 100% of unpaid overtime owed to the employee dating back three years from the employee claim.
- Penalty for classifying an employee as an independent contractor: 1.5% of all wages paid to the employee, $50 fine for failure to file Form W-2, 40% of employee FICA taxes, and 100% employer FICA taxes.
- Penalty if the misclassification is determined to be intentional: Up to 20% of all wages paid to the employee, 100% employee and employer FICA taxes, and criminal penalties of up to $1,000 and one year in prison. A year in prison! Yikes.
Missing a payroll deadline: nothing will chase good employees away faster than skipping a payroll date or bouncing a check. Your employees work hard to make your business a success, and they need to know they can trust you.
Missing tax deadlines: the IRS is not prone to giving grace periods for late payments, so know the deadlines and procedures for filing so you can stay in compliance.
Following state laws: If you run a relatively large retail business with multiple locations in different states, you must comply with the state rules where your employees live and work. Companies with remote work staff know the reality of having to research and comply with laws varying from state to state.
Unpaid training: you cannot cut an employee’s hours during training unless it is voluntary or not related to their job.
On-the-job injuries: if an employee is injured on the job, you must continue paying them for time off and injury-related medical treatment.
Miscalculating taxes: it’s up to you to get everything right; the state and federal taxes. Non-compliance can cost you big bucks in fees and penalties.
Maintaining payroll records: Don’t expose yourself to legal jeopardy by not maintaining neat and accurate written records for hours worked, including overtime hours, pay rates, earned PTO, etc. Your payroll records should be up to date and saved for at least three years. Check your state regulations because they may require that you keep your records for longer periods.
Ignoring garnishments: You cannot overlook court-ordered garnishments, levies, or child support. Whoever handles your payroll is responsible for sending the payment to the appropriate recipient.
Miscalculations on benefits: 401K insurance, accrued time off, healthcare contributions
Not keeping track of PTO, sick days, and promised contributions in a 401K Plan or employer-sponsored profit-sharing plans can get you into hot water. Employees can sue you up to three years after a payroll dispute.
Choosing The Best Payroll Services for Small Businesses
Your payroll needs will vary by industry, location, number of employees, and the level of HR support you need. Here are a few things to keep on your radar during your search:
- Features: Every business has its own unique needs to consider when selecting the best payroll service partner for your business. Start a list of features that you need. There are lots of payroll companies out there, and they mainly offer the same services. Check the services provided in different plans because pricing does vary. If you don’t have an HR department, it’s probably a good idea to select a company offering HR functions.
- Easy to use: Small business owners don’t have the time to learn a complicated system. Again, check the reviews. You will want a system that is easy to set up, easy to use, and provides good customer support if you encounter any problems.
- Affordability: Most payroll services offer the same services at comparable prices. Please pay attention to the plan structures because some offer more features in their lower-priced plans than others. You don’t want to get stuck with a service that provides a great monthly plan with a stripped-down offering. You may find later that you need additional features that you’ll need to pay a premium for.
- Includes benefit management: There’s a lot of competition out there when it comes to finding good employees. By offering substantial benefits, you’ll gain access to a much larger pool of talent. If you don’t have a lot of extra time to shop for affordable health, life, and short and long-term disability plans, then chose a payroll provider that offers benefits management as an option.
You can always check online reviews or ask fellow business owners about what payroll services they trust. Recommendations from friends and colleagues can carry a lot of weight, or you can just check out this comparison of features and plan costs for five of the best payroll services.
Comparing Payroll Services
Payroll is confusing, time-consuming, and an essential part of running any business that hires employees. Here are some of the top-rated companies available.
Gusto offers full-service payroll, benefits management, time tracking, compliance help, and certified HR experts to help with any questions. They offer four plans:
- Basic, for one or two employees. ($19/month + $6-per-employee fee)
- Core, best for smaller businesses. ($39/month + $6-per-employee fee)
- Complete, for growing businesses. ($39/month + $12-per-employee fee)
- Concierge, for larger businesses with HR needs. ($149/month + $6-per-employee fee
Paychex helps make complex HR, payroll, and benefits easy to manage with innovative technology and the expertise of highly trained HR experts. They offer three plans:
- Paychex Go® for basic payroll functions. ($39/month + $5-per-employee fee)
- Paychex Flex® Select adds some HR functions. ($90/month + $5-per-employee fee)
- Paychex Flex® Enterprise works best for large companies that may already have some in-house HR support. (Quotes are customized based on your specific needs)
The fact that Intuit and Quickbooks are one company might be one of its more robust selling points. If you’re already using Quickbooks to manage your company finances, then you’ll find it easy to integrate and understand Intuit payroll.
- Core covers the basics. ($45/month + $4-per-employee fee)
- Premium adds some HR support and services. ($75/month + $8-per-employee fee)
- Elite gives you on-demand access to payroll experts. ($125/month + $10-per-employee fee)
ADP has been around for over 70 years and has been named to FORTUNE Magazine’s “World’s Most Admired Companies®” list for 14 consecutive years. Pricing starts at $59 per month plus $4-per-employee. Head to the website for introductory rates and a quick, online quote. Tiered-pricing is available in four product bundles:
- Essential is ideal for companies that need a standard payroll application.
- Enhanced adds additional features for recruiting, unemployment insurance, and background checks.
- Complete adds basic HR support.
- HR Pro adds enhanced HR support and more.
Square payroll is designed with small businesses in mind, providing full-service payroll, automated tax filing, and employee benefits management in one place.
- Employee and Contractor payroll includes all of Square’s payroll features. ($29 per month + $5- per employee or contractor)
- Contractor Only payroll has no base subscription fee and is just $5 per month per contractor paid.
Best Online Payroll Services
The five companies listed are among the best for comprehensive payroll services, and you really can’t go wrong with any of them. Some are more experienced, have more bells and whistles, and are therefore more expensive. For the money, we think Gusto provides the best value for everything you need to tackle your payroll tasks.
Who is Gusto?
One thing this past year has taught us is that work is so much more than a paycheck. It’s about connection, respect, and adaptability. Now that employees are heading back to work in person, the way they think about their roles has shifted. They understand their value and exactly what it means to be essential. Employers are finding it increasingly difficult to find motivated and qualified employees to fill job openings. It’s a “buyers” market, so to speak, where workers can afford to weigh more options. Employees not only want livable wages, but they also want flexibility, remote work options, and benefits. These times were made for more than focusing on payroll, so that’s why Gusto proudly labels their service as a people platform.
Gusto was designed to make it easy to onboard, pay, insure, and support your hardworking teams. Of course, they offer full-service payroll and HR support, but they go way beyond making sure that your employees and taxes are paid on time.
Gusto can help you find affordable medical, dental, and vision plans to keep your employees covered. They also assist with hiring, onboarding, and employee scheduling. Accidents and emergencies happen, so Gusto can help give your employees access to cash before they get paid with Gusto Cashout.
Gusto is committed to helping your employees build their financial health. On top of long-term savings plans like 401(k)s, they offer a free Gusto Wallet app with automatic savings, the Gusto debit card, and more.
With Gusto, your small business has a user-friendly system that includes new-hire reporting, tax reporting and remittance, flexible payroll schedules, unlimited payroll runs, contractor payments, and multistate payroll capability. Gusto can be accessed from any device, so no new app is required.
Set up Process
If you choose Gusto to run your payroll, you’ll need to gather these details before setting up your account:
- Addresses: This includes the physical address where any employees work in the U.S., including remote employees.
- Employee information: You’ll need the name, hire date, manager, work address, employee email address, and compensation information for each employee.
- Federal tax information: This includes your business’s federal EIN, company type, and legal entity name.
- State tax information: You’ll need registration and compliance information for every state where your employees work.
- Bank details: Have your business checking account routing number and account number available.
- Pay schedule: Details about your company’s pay period, including the number of days covered within each pay cycle.
- Payroll history: Information about the previous year’s payroll, so Gusto can accurately calculate and report taxes.
- Signatory details: Approved signatory’s name, title, Social Security number, birth date, phone number, and home address
It’s a lot of information requiring some digging. The good news is you only have to set up payroll once. After the first time, you can set up a routine to handle payroll responsibilities and quarterly and year-end tax filing and reporting.
Payline + Payroll
With full-service companies like Gusto handling payroll and HR functions, consider providing that same level of oversight and protection for your customers and your bottom line. To learn more about flexible payment processing solutions that can save you time, money, and headaches, visit Payline.