Companies offering payroll services usually have similar procedures for setting up an account. Payroll outsourcing shifts all payroll functions to a third party: employee wage calculation, tax withholding information, and savings and account transfers are all performed by the payroll company. The only thing your business provides is the basic employee information, such as W-4 forms and employee bank information. The payroll company can write checks or use direct deposit to pay employees, and provide W-2 forms at the end of the year.
Payroll processing companies can make payments from an account held by your business, or from their own account. If you use the latter option, you’ll probably want to arrange for automatic deposit of funds before each payday. The payroll company will use these funds to pay employee wages and taxes, and collect processing or service fees charged for using the payroll service. It’s common for a payroll company to require a “reserve” account in case a regular (bi-weekly or monthly) deposit is not received on time. The account setup is simple and fast. The more time consuming part of the process involves transferring necessary employee information to the payroll company. A payroll company will usually specify the relevant employment forms, such as W-4s, I-9s, and other applicable tax documents.
If you decide to offer direct deposit, you will need to provide employee banking information. The more options your company offers, such as savings accounts, cafeteria plans, or other benefits to employees, the more information you’ll need to provide. The payroll company will be able to tell you exactly what you need to set up the account.
After you provide the necessary information, you will need to set up the procedure for “calling in” or inputting payroll information at the end of each pay period. The payroll company will need to know how many hours each employee worked (for hourly employees) or any sick or vacation time taken for salaried employees. You may also need to communicate savings or retirement plan contribution information. Some companies require an actual call from an authorized employee. Others allow you to enter the information online.
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Online access offers several benefits, chief among them the easy access to information. If you use a provider that offers online access, employees can change information about exemption status or contribution amounts themselves, saving you the time of being the “middle man” between the employee and the payroll company. This feature also eliminates the need to save bank receipts or pay stubs.
Most providers will offer a “trial run” of a call in or information transfer before the system is fully in place. Make sure you are aware of the procedures before you sign a contract.
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