Choose A Trustworthy Payroll Service Provider

Choosing a trustworthy payroll service provider can protect employers from fraud.

Employer’s Outsourcing Payroll Responsibilities

Many employers outsource some of their payroll and related tax duties to third-party payroll service providers. These services can help assure filing deadlines and deposit requirements are met and greatly streamline business operations. But remember, employers are ultimately responsible for the payment of income tax withheld and both the employer and employee portions of social security and Medicare taxes. (In certain situations, employers who are customers of a Certified Professional Employer Organization are relieved of their liability for income tax withholding and social security and Medicare taxes.)

Third-Party Arrangements

Employers may designate or enter into an agreement with a third party in which the third party agrees to take over some or all of the employer’s Federal employment tax withholding, reporting, and payment responsibilities and obligations. The following are some common third-party arrangements:

Payroll Service Provider (PSP)
Reporting Agent (RAF)
Certified Professional Employer Organization (CPEO)

Depending on the facts, circumstances, and the type of third-party arrangement, an employer who uses a third party to perform Federal employment tax functions on its behalf may remain solely liable for Federal employment taxes, may become jointly and severally liable for such taxes, or could possibly be relieved of liability for such taxes.

Hiring a Payroll Service Provider

When hiring a company to handle payroll and payroll tax for your business, you should carefully choose your payroll service provider. This can help your business avoid missed deposits for employment taxes and other unpaid payroll-related bills.

Most of these businesses provide quality service, but some do not have their clients’ best interests in mind. Each year, there are a few payroll service providers who close down abruptly without submitting their client’s payroll taxes. The damage hits their unsuspecting clients hard.

Typically, the clients remain legally responsible for paying the taxes due, even if the employer sent funds to the payroll service provider for required deposits or payments.

As an employer, you should understand your payroll and employment tax responsibilities and choose a trusted payroll service to handle this important job. Here are two options:

A Certified Professional Employer Organization
Typically, CPEOs are solely liable for paying the customer’s employment taxes, filing returns, and making deposits and payments for the taxes reported related to wages and other compensation.
Reporting Agent
This is a payroll service provider that informs the IRS of its relationship with a client using Form 8655, Reporting Agent Authorization, which is signed by the client. Reporting agents must deposit a client’s taxes using the Electronic Federal Tax Payment System and can exchange information with the IRS on behalf of a client, such as to resolve an issue. They are also required to provide clients a written statement reminding the employer that it, not the reporting agent, is ultimately responsible for the timely filing of returns and payment of taxes.

Employers should enroll in EFTPS and make sure its payroll service provider uses EFTPS to make tax deposits. It’s free and it gives you, the employer, safe and easy online access to your company’s payment history when deposits are made under your Employer Identification Number, enabling you to monitor whether your payroll service provider is meeting its tax deposit responsibilities.

A Final Note

If you receive any bills or notices from the IRS regarding payroll and related tax duties, even if managed by a third party, use the contact number provided on the correspondence when making an inquiry. Also, you may contact your local tax professional for advice.

Stay safe. Stay well. Stay home.