There are three main types of payroll services: those provided by bookkeepers and certified public accountants; professional payroll services; and employee lease companies.
Bookkeepers and CPAs, although they can prepare payroll and maintain tax records, do not offer the full range of services offered by professional payroll services. Most notably, they do not offer the bank interface services such as direct deposit, 401(k), IRA, and debt card options; the client company must establish these itself.
Employee lease companies provide all the services of payroll preparation because they must--workers are employed by the lease company, and are "leased back" to the company for whom they work and by whom they are managed. Employee lease companies, besides providing complete payroll services, deliver a full range of human resource services as well.
This article focuses on the services offered by professional payroll services.
Payroll Services Help Large Companies Manage Costs
For large companies, outsourcing the payroll function reduces the head count needed to manage this function internally. Although there is a cost for service, depending on the size of the operation, the fee paid to outsource may be less than the cost of retaining staff employees.
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For smaller companies, payroll services reduce the hassle and responsibility associated with processing payroll and maintaining all the associated information required for tax preparation and filing. Client companies must still provide a point person, but that person is not burdened with the full extent of payroll preparation and administrative tasks that may be unfamiliar to the small business operator.
Payroll Services Reduce Distractions and Enhance Focus on Core Business
One reason that companies of all description use payroll services is that professional processing of payroll by reputable service providers frees up management to concentrate on its core business. With a well established payroll preparation service, there is no need for client companies to worry about training, absenteeism, politics, embezzlement, and the host of other issues that might crop up in the day-to-day operations of a payroll department.
Payroll Services Keep Clients Compliant
Another reason companies use payroll services is to keep on top of city, state, and federal payroll and tax legislation without having to hire or retain payroll legal counsel. Professional payroll companies (versus third-party bookkeepers who might prepare payroll), spell out in their service contracts their obligations to clients to keep in compliance not only with the law, but with business best practices. This offering by payroll services is not trivial--it can help clients avoid penalties, fines and worse.
Payroll Services Help Clients Retain Employees
Even if it is true that money is not the number one motivator for most people, mess up the payroll even once and see how important money becomes. Employees need to know their compensation is going to be paid on time, every time, and that all payroll calculations including overtime, sick pay, vacation days earned and burned, and contributions to retirement and health plans are accurate and transparent.
Just as executives can be distracted from their core businesses by managing the payroll function internally, employees are distracted when there are glitches in payroll. All manner of unwanted behaviors surface when a company displays any instability associated with payroll: gossip, defection, and theft are just a few. No company can afford the damage these behaviors can cause.