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27 June 2018

When to Consider Outside Payroll Help

When to Consider Outside Payroll Help

At some point, every small business experiences growing pains when it comes to “keeping the books.” It doesn’t take much for payroll and other expenses to get complicated. In fact, one of the first things we do when small businesses hire us is to help the business owners regain control of their books and payroll. Doing so can not only find money you’ve left on the table, but it can help you avoid steep IRS penalties, too.

The IRS assesses about 6 million civil penalties amounting to over $6 billion dollars for employer payroll tax issues each year. Some of these violations are due to what the IRS considers a “willful” failure to pay and others are simply due to poor bookkeeping or management. Either way, the IRS can hold business owners and every other responsible party personally accountable to ensure those taxes are paid. (For more on how the IRS determines personal liability for missing employment tax payments, see this previous article.)

How do payroll taxes become unmanageable? The most common ways include:

  1. Rapid business growth. When a business grows rapidly, the owner sometimes has no choice but to trust local branch, franchise, or other middle management to stay on top of the books—often with little to no oversight. That can lead to big problems down the road, as one of our clients found out.
  2. Remote workers. Technology allows for small businesses to manage remote and telecommuting workers quite successfully, but there are complications. Employees are generally subject to the income tax withholding of the state in which they work (not the state in which the employer is located) so, unless your in-house payroll manager is an expert in every state and jurisdiction’s income tax laws, employing out-of-state or even out-of-country workers can get very complicated very quickly. Add localized employment laws like overtime and discrimination rules, and the logistics of managing remote workers become exponentially more complicated.
  3. Technology. Moving to a paperless payroll system—which can include direct deposit, digital timesheets, automated tax filings and other efficiencies—can save you and your employees time and effort. But it can also lead to data security issues and other oversights if not handled correctly.

Enlisting outside assistance, whether from a full-service payroll provider or a more traditional CPA or bookkeeping firm, can help you avoid payroll and other federal violations due to the above complications. But, the IRS warns, it’s important to keep the following points in mind:

  • You (the employer) are ultimately responsible for the tax liabilities. If the third party fails to make payments, you’re liable, not the third party.
  • Don’t change your address of record to the payroll provider. If there are any issues with your account, you’ll want the IRS to notify you, not them (so you’re not potentially left in the dark).
  • Be sure your payroll provider uses EFTPS (Electronic Federal Tax Payment System). You should also register on the EFTPS system to get your own PIN and use that PIN to periodically verify payments.

Most of the time, employers are unaware that their bookkeeping is off until it’s too late. Feel free to contact us for questions or to book a consultation to help you decide if your payroll is healthy or is in need of outside help.

Image Copyright: flynt / 123RF Stock Photo


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