Payroll services are among the greatest administrative challenges a small or mid-sized businesses faces. Besides tracking employee hours and distributing payment, businesses must navigate a thicket of tax regulations to avoid costly fines. To do the job right, many SMEs turn over payroll administration to the experts: professional employer organizations.
Sending Payroll to the PEO
A professional employer organization, or PEO, serves as the employer of record for tax purposes, filing paperwork on behalf of the client. Payroll services are a cornerstone of the PEO's value to a smaller business. PEOs use their expertise and access to up-to-date human resources (HR) management software to manage this complex process from start to finish.
PEO payroll services assume responsibility for:
- Processing payroll
- Distributing paychecks
- Paying employment taxes
- Distributing employee tax documents such as the W-2 and 1099
- Fielding employee payroll inquiries
Three Benefits of PEO Payroll Services
Small and mid-sized businesses benefit in several ways by handing off their payroll preparation to a professional service provider:
- Save Time. Payroll preparation can consume a significant chunk of the internal HR staff's time--particularly in small companies, which are less likely to have a dedicated payroll expert on staff.
- Save Money. PEOs save their clients money by dealing in volume. Between operational efficiencies and direct discounts on services, PEOs cut the costs of payroll preparation. Clients save the expense of maintaining internal payroll staff and investing in payroll software. In addition, a PEO's expertise in tax and workers' compensation can reduce payments and eliminate penalties.
- Avoid Tax Penalties. PEOs have the expertise and best practices in place to complete employment taxes accurately, avoiding penalties. They navigate the complexities of multi-state and international tax requirements, and keep tabs on changes in federal and state tax codes.
PEO Payroll Service Success Stories
PTE Real Estate: Payroll Taxes. For Phoenix-based small business PTE Real Estate Group, the most immediate and dramatic benefit of contracting a PEO for payroll services was cost savings. The PEO assumed responsibility for three payroll preparation services:
- Biweekly payroll
- Payroll taxes
- Workers' compensation
The PEO initiated the relationship by conducting a comprehensive labor burden analysis, which set out all the expenses associated with payroll preparation: wages, workers' compensation insurance premiums, taxes, and administrative fees. The analysis revealed excess tax payments of $55,000 per year.
Halsell Builders: Workers' Compensation. PTE Real Estate Group's experience is not unique. PEOs offer the expertise to uncover excess tax payments and avoid penalties for mistakes. Halsell Builders, a small construction company based in Santa Maria, California, saw an instant $43,000 return upon contracting with a PEO. The company had just received a $58,000 fine for incorrect reporting following a worker's compensation audit. The PEO was able to renegotiate the bill down to $15,000. Not long after, the PEO uncovered another $10,000 in excess payments following an insurance audit.
Small and mid-sized businesses stand to benefit dramatically by leaving payroll preparation to expert service providers. As business owner Margie Halsell puts it, "It is such a relief to know that all these critical aspects of our business are being taken care of by experts in the field." With a trusted representative assuming responsibility for payroll administration, companies are free to focus on the essentials: operating and growing the business.
Sources
CNN Money
Creative Business Resources
Ezine Articles