It might be tempting to handle your tax reporting in-house, but it's important to remember that you will sacrifice time that could be spent on running your business. Learn how to choose the best fit for your business's tax reporting needs.
By Jo Anne Killeen
Once you hire employees, you enter an entirely different realm of tax reporting. There are many things to keep track of and laws to know about. Fortunately, there are also scores of options at your disposal. Here are some pointers that will help you to determine if your business would benefit from outside help, and if so, which type would best suit your needs.
At some point in the life cycle of every business, a crucial decision must be made. Do you administer payroll in-house by hiring a bookkeeper or purchasing a good software program? Or do you outsource to an accounting firm or payroll administrator? The answer depends on the size of your company, how fast it will grow and how much time you want to spend on administrative issues. One thing is for sure: You, as the business owner, are ultimately responsible for the deposit and payment of federal tax liabilities and penalties. So, it is important to do it right.
Whether you have one employee or 20, employment tax rules are complicated. Payroll services and other tools help streamline the process as you begin to track and withhold the appropriate amounts for federal income and other earnings-related taxes. Accounting firms, payroll services and software packages relieve employers of labor-intensive administrative duties. There are also professional employer organizations that handle payroll as well as human resource duties.
In-house or Outsource?
In determining whether you should administer payroll in-house or outsource the duty, the most important factors to consider are the value of your time and the cost effectiveness. If your time is better spent finding and servicing your customers, then follow your passion and let those who specialize in payroll administration take that burden from you. Sometimes, even firms with certified public accountants on staff outsource their payroll.
It may seem cost-effective to administer payroll in-house, but it can be costly if you falter in terms of penalties, interest and time. Forty percent of small businesses that do their own payroll are fined an average of $845 per year for inaccurate returns, according to the Internal Revenue Service.
Where to Get Help?
The IRS Web site contains a wealth of information about payroll issues, laws, calendars, calculations and even a tutorial on the basics of payroll deductions.
The American Payroll Association is also a good resource for employers. This is a not-for-profit organization that provides information, education, downloadable resources and a myriad services to assist employers in learning the nuts and bolts of payroll. The American Payroll Association's Web site contains a number of buyer's guides for payroll outsourcing options, self-service solutions, payroll consultants, time and attendance systems, buyer and e-payroll providers.
Another source for obtaining information about other local employers' practices is the Society for Human Resource Management.
Off-the-shelf payroll software programs are available to small and midsized businesses. The most popular are QuickBooks Premier®, Microsoft Office Small Business Accounting® and Peachtree®. These are all user friendly with online support.
Costs to outsource payroll depend on the complexity of your payroll system, but generally should be around $2 to $3 per employee per paycheck for basic services such as calculating deductions and cutting checks. Issues such as direct deposit, deductions for health benefits, retirement or deferred compensation, multi-state operations and net deductions, add complexity-and costs-to your payroll systems.
Be sure to bring your accountant into the decision-making process because he or she will be able to offer an educated perspective.