Concerns about Outsourcing Payroll

"XXXXXX XXXXXXX" <x@xxxxschools.org> writes:

Does anybody outsource their payroll?

Outsourcing leads to loss of control and direct oversight

 

I recently got an email from a colleague asking about outsourcing payroll.  In these tough economic times with a 2% CAP on tax levy increases in New Jersey for public schools, many boards and administrators continue to search for savings that often lead to questions about outsourcing various functions of the operation.  Payroll is no exception as the there are a myriad of companies out there willing to take on the function at a savings to the client.  As with this or any outsourced function, keep in mind “business is business” and nothing is free.  Often I speak of “opportunity cost” in addition to actual dollars expended as the decision impacts your ability to retain direct control over the activity.  With payroll, having the ability to meet, discuss and review critical issues in real time vs. coordinating phone calls and follow up with individuals who are not familiar with the personnel or circumstances puts you at a loss.  Likewise, you lose the ability to brainstorm and create back up spreadsheets and calculations needed in negotiations, budgeting and on site verification of tax issues or employee deductions.   

  

Outsourcing payroll is really not a great option since you still are required to compile, calculate and prepare the payroll input prior to handing off to an outsourced company such as ADP.  The processing, printing and distribution is actually the easy part.

 

Not to mention the loss of control with respect to errors, compliance and proper remittance of taxes, look what happened a few years ago when municipalities and boards of ed got burned through an embezzlement of agency funds that were earmarked for tax remittance. 

 

“Even though you forward the tax payments to the third party to make the tax deposits, you—the employer—are the responsible party,” the IRS cautioned. “If the third party fails to make the federal tax payments, the IRS may assess penalties and interest. The employer is liable for all taxes, penalties and interest due. The IRS can also hold you personally liable for certain unpaid federal taxes.” (SEE BELOW)

  

http://www.accountingtoday.com

 

IRS Warns Employers about Payroll Outsourcing Fraud

 

Washington, D.C. (September 2, 2011)

By Michael Cohn, Accounting Today

 

The Internal Revenue Service issued advice on Friday to employers who outsource their payroll duties to third-party service providers.

 

In a tax tips email, the IRS referred to recent prosecutions of individuals and companies that pretended to be payroll service providers and instead stole funds intended for payment of employment taxes. The IRS noted that the employer is ultimately responsible for depositing and paying federal tax liabilities.

 

“Even though you forward the tax payments to the third party to make the tax deposits, you—the employer—are the responsible party,” the IRS cautioned. “If the third party fails to make the federal tax payments, the IRS may assess penalties and interest. The employer is liable for all taxes, penalties and interest due. The IRS can also hold you personally liable for certain unpaid federal taxes.”