A payroll service provider is a company that either assists with or assumes all aspects of payroll on behalf of another business. This arrangement is often beneficial for employers who value their time and want to ensure that their employees and taxes are paid accurately and on schedule.

What do payroll providers do?

Payroll service providers generally deliver more than just basic payroll calculations. Most use technology to minimize laborious, administrative tasks for employers and create engaging experiences for employees. Some core capabilities of payroll providers include:

Automatic payroll processing

The time spent calculating wages and paying employees is greatly reduced when the process is automatic. Flexible payment options – paycheck, direct deposit or paycard – may be available.

Tax withholding and wage garnishment

Automated payroll systems ensure that all appropriate taxes, garnishments and other payroll deductions are withheld from employee wages accurately and paid on time.

Tax filing services

Some full-service payroll providers will take care of filing federal, state and local taxes on behalf of their clients. They may also assist with year-end reporting and prepare Forms etc.

Compliance expertise

Payroll providers typically keep up with regulatory changes and may notify their clients about changes to wage and tax laws that affect their business. What’s more, some cloud-based payroll systems have real-time compliance updates.

Payroll reporting

Employers typically can run detailed reports covering all areas of their payroll operations – wages paid, taxes withheld and hours worked, among other details.

Employee self-service
Self-service options empower employees to review their pay statements, update their withholdings or change their personal information without the need for managerial assistance.

Product support

Most reputable payroll providers have expert specialists available to answer client questions promptly. In some cases, support is available 24/7 via phone or online chat.

Payroll service transition checklist
Once a contract is signed, the new payroll provider’s implementation team will typically provide guidance on the transition and setup process. The following checklist provides an overview of what employers can expect during this time:

Preparation of payroll data

Detailed information must be provided about all employees, payroll, taxes and the business itself. Examples of some of the necessary documentation includes Form W-4 withholding certificates, current year Form 941 payroll filings and employer tax ID numbers.

Tax history verification

New payroll providers usually check the tax history from the previous quarter for any errors that need correction and may pay any taxes owed on behalf of the client.

Payroll verification

Prior to the first live payroll, the new provider may conduct a digital onboarding process, during which the client reviews all bank, employee and tax information for accuracy.
Cancellation of old payroll and tax services
After the new provider successfully runs the first payroll, employers can close out their contract with the old payroll provider and any separate entities that paid taxes on their behalf to avoid double payment.
Frequently asked questions about payroll service providers
What are some types of payroll providers?
When it comes to processing payroll, business owners have the following types of providers to choose from:

Payroll software provider

Online software automates payroll, which simplifies calculations and produces more accurate results. Depending on the package, taxes and compliance may still be the responsibility of the business owner.
Full-service payroll provider
This options affords employers the most value in terms of time and peace of mind since the provider handles all aspects of payroll on the client’s behalf.
Accountant
Employers who enlist the aid of an accountant usually get trusted advice on the local tax regulations specific to their business. However, counsel may not be available 24/7, especially during tax season.
Professional employer organization (PEO)
Co-employment arrangements typically include full-service payroll, plus the added bonus of compliance monitoring, HR support, competitive benefits packages and more.
Do payroll service providers offer mobile applications?
Yes, many payroll services are equipped with mobile capabilities so employers can run payroll, create and manage timesheets, or check tax payments from any device, at any time. Self-service applications are also typically mobile friendly, which allows employees to check their pay statements, update personal information or manage withholdings while on the go.

What is the average cost of a payroll service?

The average cost of a payroll provider varies based on business size, payroll frequency and the number of services required. In most cases, there is a monthly base fee, plus a per employee processing fee. Finite Global Solution works with clients to determine the right package for their business, no matter how simple or complex their needs are.

Do payroll providers offer tax penalty protection?

Some payroll providers offer compliance monitoring services that can help protect employers against expensive tax violations. Additionally, if a provider pays taxes on behalf of the client, it may offer a guarantee that the taxes will be done right or it will pay to correct the errors.

This guide is intended to be used as a starting point in analyzing an employer’s payroll obligations and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that Finite Global Solution is not rendering legal or tax advice or other professional services.