Payroll Processing

Payroll preparation involves more than just checks. It includes the year-round preparation of federal, state and local tax returns and deposits; up-to-date recordkeeping; and monitoring of ever-changing tax laws—all of which take time and energy that might be better spent elsewhere in the company, especially for a small business that uses manual or in-house computer payroll processing.

An employer has many obligations related to payroll. One important task involves complying with regulations established by the Fair Labor Standards Act (FLSA), also known as the Federal Wage and Hour Law. FLSA is designed to protect employee rights. Among the issues it covers are the federal minimum wage requirement and a definition of “wages.”

Employers must also consider who their employees are. Generally, employees fall under two categories—common law and statutory employees. Common law employees are those who perform services whereby you, as the employer, control what will be done and how it will be done. Generally, people in business for themselves are not employees, such as doctors, lawyers and construction contractors. The other category, statutory employees, refers to someone who works for you and is not an employee under the common law rules for federal withholding.

Once you have employees, you need to think about wages. Wages generally include all the pay you give an employee for services performed. The pay may be in cash or other forms, including salaries, vacation pay, sick pay, commissions, bonuses and fringe benefits. Wages and other compensation are generally subject to employment taxes.

Any benefits that an employer provides to employees are also subject to employment taxes, such as cafeteria plans, pension and annuity plans, dependent care programs, stock options and achievement awards.

After wages comes processing payroll. A payroll is prepared at the end of an established pay period. An employer must establish how often the employees are to be paid. This could be anything from a daily or an annual frequency. At the end of each pay period, an employer must gather all information necessary to prepare a payroll for the pay period. This procedure may include (but isn’t limited to) totaling each employee’s timecard to find the hours worked for the pay period. It may also include other documents the employer establishes for rate changes, address changes, other types of pay and other factors.

Most employers are required to withhold specific employment taxes from an employee’s pay, including:

-Federal Income Tax
-Social Security and Medicare Taxes (FICA)
-State and Local Income Tax
-State Unemployment Insurance
-State Disability
 
Conversely, an employer is also required to pay a portion of the following employment taxes:

-Social Security and Medicare (FICA)
-Federal Unemployment Insurance
-State Unemployment Insurance
-State Disability

Employers must deposit taxes and file many returns and reports. Payroll reporting requirements are often complex and confusing, and employers must be alert to the different rules. The timely deposit of taxes and the accurate and thorough preparation of returns are essential to an employer’s compliance procedures. Otherwise, an employer can easily incur costly penalties.

Finally, employers are required to report information about their newly hired and rehired employees to the appropriate state agency within 20 days of the date of hire. The New Hire Reporting regulations were passed as part of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 to help enforce child support rulings and reduce welfare payments.

To assist business owners across the country, national payroll providers, such as Paychex Inc., offer customized payroll processing at affordable fees. Such payroll providers deliver a client’s payroll along with detailed reports, including payroll journals, employee earnings statements, and department summaries—all of the information necessary to effectively operate a business.

Payroll providers may also offer optional services. Paychex’s Taxpay®, for example, helps eliminate payroll tax worries by handling all tax returns and deposits with guaranteed accuracy and timeliness, in addition to meeting Electronic Federal Tax Payment System (EFTPS) requirements. Most business owners understand how much work is required to take care of payroll preparation, employment taxes, and recordkeeping. Working with a national provider keeps the owner in control of the company’s payroll and allows them to put their time and expertise where it belongs—back into the business.

Paychex Inc. (Paychex.com) has more than 30 years experience as a national payroll provider.

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