The payroll file folder isn't as useful as a payroll service

What is a Payroll Service?

Payroll management is one of the most time-consuming tasks facing an employer. Every week, two-weeks, or half-month, employers must figure out the wage earnings of each employee, subtract the correct amount of income tax and Social Security deduction - as well as Medicare - and show the adjusted amount of sick pay and vacation pay earned by each worker.

Many companies use an outside-party service organization or online automated payroll program to handle the job of paying employees and figuring deduction totals. This type of service helps to free up valuable time for the administrative staff of the company. A payroll service can be a basic pay sheet and check writing program. It may also be something much more complex, with complete services for handling employee benefits, health insurance, and retirement savings.

How The Service Operates

A traditional payroll management service company will contract with a client using a simplified base fee charging schedule. In addition to this monthly fee, the payroll service company may also charge a small amount per employee per month. The employees are not leased to the service company - which was more the norm in the 80s and 90s - but rather remain employed by the client.

At the end of each pay period, the employee attendance and work hour info is transferred to the payroll company. This can be done in one of two ways. The time cards can be verified and the data forwarded to the payroll service company, or an automated time clock can be used that figures out base pay hours, overtime pay, and vacation pay. The data is sent directly to the payroll management service company's server network.

The payroll management company then uses a high-speed program that acts much like a bank check clearinghouse. The checks for each employee are automatically processed. The checks are delivered to the client, and the client delivers them to each employee. The service also includes the processing of direct deposits to employees' checking accounts.

Finding A Reputable Payroll Service Company

These companies advertise regularly in business magazines, on the Internet, and through the mail. Searching online will reveal a large number of these companies, some of which operate nationwide.

Before choosing to do business with a payroll management company, it is important to form a list that includes all services desired. Depending on the size of the company and the number of employees, it may be highly beneficial if the contracted payroll service handled the medical/dental insurance as well as retirement plan deductions. Each service may include a small monthly fee, however. The basic service may only cover simple paycheck processing.

Safety and security are also important considerations. Finding out the security level of the payroll management company's data storage is strongly recommended. Encryption and storage procedures should be investigated.

Payroll management should always cover year-end procedures as well. Most reputable payroll management service companies will not charge extra to process W-2 and Form 1099 slips.

Last Updated: February 10, 2016