Payroll outsourcing is still an inside job

The movement to electronic filing and the increased complexity in the rules governing payroll have resulted in an understandable trend of outsourcing payroll and employment tax.  But, when it comes to outsourcing, out of sight does not mean out of mind.

Handing your payroll and employment tax processing to a third party is no different from hiring employees to do the work. The company’s executives continue to be liable for compliance, meaning, oversight of the work is still an inside job.

When it comes to payroll outsouring, out of sight should not be "out of mind"

When it comes to payroll outsouring, out of sight should not be “out of mind”

Occasionally, a big story hits the news about a less than upstanding payroll company absconding with their clients’ tax deposits. When this sort of new breaks, the importance of third-party oversight gets some focus. Recently, for instance, the IRS added a web page (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Third-Party-Arrangement-Chart) explaining the steps employers should take to confirm and review third-party returns and tax payments.

Invest in your internal resources

The job of supervising payroll/employment tax vendors requires substantial internal expertise.

Take earnings and deduction codes for instance.  The task of reviewing the plan or policy and choosing a preconfigured template requires an understanding of the federal, state and local employment tax rules.  Vendors are not responsible for choosing the wrong configuration templates, or correctly identifying exceptions that may apply.  (See the post, the ABC’s of FSA, HSA and HRA at http://wp.me/p3RWNG-29.)

Payroll vendors are frequently tasked with creating a general ledger interface; however, there are numerous transactions outside of regular pay data that must also be correctly recorded.  Analysis of general ledger codes and their balances are required too if there are changes in the company’s organization structure that reach to where and how  payroll transactions are booked. Accuracy of general ledger entries is not only important for financial statements–they may also come under close scrutiny for purposes of tax enforcement, workers’ compensation, and other employment related audits.

Having individuals within the organization who have cross-functional knowledge of accounting, payroll and employment tax is key to the effective and efficient management of human resources.   The rules governing payroll and employment are routinely evolving, as are the technologies necessary to comply with them.  That’s why investing in payroll training and informational resources is also important.

Falling into complacency is tempting when trusted payroll vendors are relied on for the heavy lifting.  That’s why the supervisory role should be carefully defined with  performance monitored and rewarded.

Do you outsource payroll/employment tax? 

Tell us what steps you take to supervise your vendors, and how your performance is measured. 

About these ads

2 thoughts on “Payroll outsourcing is still an inside job

  1. I agree with your statement. Too many organizations think that they don’t need to understand taxes, payroll, etc when they outsource. It is exactly the opposite. Whether you do payroll in house or outsourced, you need to understand employment law, taxes, benefits, etc. Employers take note that you need to take responsibility for the administration of payroll. The providers can perform the operations and guide you on how to use their system to achieve what you want.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s