Running a business can be complicated and overwhelming. Owners face daily decisions. Human resources and staffing. Technology and marketing. Financial and legal. When grappling with such issues, many owners of small or middle sized companies opt to outsource their payroll processing and accounting. They turn to payroll and management companies and CPAs. Such companies offer several advantages, but hidden disadvantages can lurk under the surface
Payroll companies manage the payroll process from beginning to end and alleviate the need for business owners to navigate tax issues. They calculate hours worked and payroll check amounts, taking into consideration withholdings for taxes, medical costs and benefits. They create and send checks to employees or companies for disbursement. When granted access, they will automatically withdraw monies from company bank accounts and direct deposit payroll to the employee. They also calculate Federal, State and County taxes to be paid by the employer, withdraw monies, file tax withholding paperwork and process tax payments. The payroll company will have the customer ACH, wire and write checks to process monies due to various parties, government entities and individuals.
During both healthy and poor economic climates, entities expect the payroll company to make the tax payments and other disbursements on behalf of the business. Unfortunately, payroll companies may “borrow” monies to keep their operations going. Despite good intentions, it often leads to payments not being made and monies being misappropriated. Given the delay between tax payments and notification by tax authorities, the business owner is slow to detect the misappropriation of monies by payroll or management companies or CPAs.
To reap the benefits of using a payroll company and avoid the pitfalls, business owners need to hold the reins. Preventing and mitigating losses involves:
- Do not ACH monies to companies on your behalf. Submit the payments yourself.
- If it is decided the payroll company should process payment, having the monies payable to employees sent to the payroll company per your approval.
- Do not allow the payroll company to initiate ACH withdrawals from the company checking account.