Payroll Processing

There are many points to consider when starting one's own business and payroll processing is one of them. Federal, state and local governments require certain responsibilities to be provided by employers through payroll deductions, like income tax withholdings, social security, Medicare, and others.

Payroll Basics

Payroll is the amount of money paid by a business to its employees. Payroll is generally distributed in set increments of time, such as biweekly or monthly. There are two ways to perform payroll for a small business, such as with payroll software or a payroll service.

Payroll Taxes

Employers are responsible for withholding money from employees' wages, tips and other compensations. Employers then send the withholdings to the government, which deposits the money into trust funds for social programs like social security and Medicare and also to pay for federal income. It is the employer's responsibility to report and deposit to the appropriate agency in a timely manner. The agency and the time frame for reporting vary by location.

Payroll Services

Payroll services are when the payroll is performed by another company. This appeals to small businesses that are big enough that payroll is complicated but small enough that there is no need for a dedicated payroll department. Payroll services print employee checks, calculate and withhold appropriate federal, state and local taxes, file payroll reports and some even do direct deposit. Some payroll services companies offer amenities such as retirement and savings plans, timekeeping, and act as a worker's compensation insurance intermediary. There is usually a monthly fee associated with payroll services, although many payroll services take payment in the form of interest earned on money deposited in a special account used to distribute payroll funds.

Payroll Software

Payroll software is available for those small business owners who wish to undertake payroll in-house. The software often offers some of the same features as payroll services, such as calculating net pay, withholding taxes, supporting different pay periods and prints checks. The features of payroll software often include direct deposit and other niche-specific items like income per mile for truckers. The payroll software option is a viable option for a small business owner who feels confident he/she can handle payroll personally. There is one flat fee for payroll software, which makes it the least expensive option compared to payroll services. However, all of the payroll work is done in-house, just not by a dedicated payroll person. It's worth considering whether the extra work would offset any amount of savings.

One large difference between payroll services and payroll software is liability. Generally, if a payroll services company makes a mistake, the mistake is fixed by the payroll services company at no cost to the client. However, if a small business owner uses payroll software and makes a mistake, the burden of repairing the mistake falls upon the small business owner. That could lead to a considerable amount of money, which may negatively impact the business.

Payroll software is generally less expensive than payroll services, which appeals to many small businesses on strict budgets. But a small business owner must take into account the assistance and guidance provided by a payroll services company. Although, the fewer the employees, the less likely the chance a mistake will be made. Small business owners must decide which matters most; paying for convenience and confidence or saving money and the personal satisfaction of providing payroll, the hallmark of a successful business.