Payroll taxes are serious, and companies shouldn’t take unnecessary risks, or they can be subject to severe penalties.
When you outsource to a payroll tax service provider, you trust them to keep you compliant with all federal and local laws and regulations. The problem is, not all payroll services are the same, and some deny responsibility if and when payroll tax problems arise. It’s important for companies not to gamble with that trust.
Instead, we want you to be informed on the two most common risks associated with payroll tax services and the most efficient ways to avoid them.
Risks and Payroll Tax Services
Full disclosure, we are a payroll service specializing in small businesses. We’ve kept hundreds of small businesses compliant with payroll and taxes. This experience has helped us identify the common risks and problems most companies face with payroll taxes and how to avoid them as well. If you’re unsure about your company's payroll tax health, schedule a call with us, and we may be able to help you solve any potential issues.
Two Common Risks Associated With Payroll Taxes
If there’s one thing we can count on for sure, it’s that tax laws constantly change at both the federal and state levels. And any company that fails to comply with these changing regulations risk penalties, which can sometimes be severe. For example, businesses can be held liable for all income and FICA taxes that they either failed to withhold from employee paychecks or pay federal and state tax agencies.
In our experience, these are the most common areas that open companies up to risks:
1. Failing to Deposit Payroll Taxes On Time
If a company isn’t careful, they can become so involved in actually running the business that they forget about payroll tax deadlines. Think about this: when was the last time you had “read up on state and federal IRS compliance changes” on your to-do list?
With federal and state tax laws constantly changing, along with the rules for reporting and depositing payroll taxes, it’s almost impossible for small business owners to keep up.
2. Human Error (Accidental or Intentional)
Errors are common anytime a human gets involved, which, in payroll and taxes, is always. If a company is found to willfully misclassify an employee (classifying employees as independent contractors), provide incorrect W-2s, or even fail to prepare W-2s for employees, they can be subject to a 100% penalty. This means the company becomes responsible for all payroll and income taxes of their employees.
Most frightening is that if a company is deemed to have recklessly disregarded obvious facts, it can be considered “willful.” In other words, not being on top of the always-evolving tax laws is a considerable risk.
How to Avoid Payroll Tax Pitfalls
Outsourcing your payroll to an expert provider is the most efficient way to avoid payroll tax pitfalls. If you partner with a trustworthy payroll provider, they should bring tax expertise to the table and shoulder the responsibility of keeping up with rules and regulations.
Although we may sound biased when saying this, just outsourcing payroll doesn’t protect you by default. There are services out there that will help you with payroll but still open you to tax risks. We talk to companies all the time who outsourced their payroll and then were blindsided with IRS penalties or extra tax fees they weren’t expecting.
It’s critical to do your homework and evaluate potential payroll services to ensure they will protect your company, especially when it comes to taxes.
In-House vs. Outsourced Tax Expertise
Some payroll providers have no in-house tax experts, choosing instead to outsource that work to a third party. In this case, when a tax issue arises, you may be frustrated and forced to chase down the cause of the issue, as well as any possible solution.
At ConnectPay, rather than outsource tax work, we have a team of tax experts in-house. When issues arise, our clients can contact their Connected Service Representative at any time with any questions or concerns. And since we are their payroll provider, their data is immediately available, resolving issues much faster.
Penalty and Fee Liability
Partnering with a payroll service that assumes no risk means that, should anything ever happen or if a mistake is ever made, your company is the one who will pay the price. As we said before, humans are always involved in making sure things are correctly processed when it comes to taxes. And humans - regardless of experience and expertise - will make mistakes.
At ConnectPay, we think of ourselves as true business partners, not just a vendor. Our clients enjoy a 100% “no penalties, interest, or fees” guarantee. That means if any mistake is made or anything filed incorrectly, we assume the cost of the error. Our clients will never pay a tax penalty or fee while we handle payroll.
Payroll Tools vs. Payroll Laws
Every payroll service uses software to manage payroll. Which software they use depends on the size of the company and the size of the payroll provider. This is another potential area where mistakes can be made.
For example, during the Covid-19 pandemic, there was a myriad of payroll tax updates at both the federal and state levels. It has been a constantly shifting landscape, with legislatures frequently moving the goalposts to balance budgetary needs with helping businesses survive.
The problem with some payroll software is that it's common for it to fall behind when updates roll out quickly, especially at the local level. If your payroll provider uses third-party software, they have no control over the accuracy of that software.
At ConnectPay, conversely, we own our own payroll software. We are in absolute control over features and updates to tax codes. When our representatives manage payroll, our clients know they will be working with the most up-to-date information at all times and that the changes in laws and regulations are reflected in the software.
Outsource Payroll to a Trusted Partner
If you’re a small business looking for a payroll solution that will not only solve payroll issues but help you maintain tax compliance as well, we would love the chance to earn your business.
We can take the burden of payroll off your shoulders while providing you with the zero tax penalty, fee, and interest guarantee. Our first goal is to provide you with a complete payroll solution, and we shoulder the responsibility and risk of doing it right the first time. With that comes peace of mind that your payroll and taxes are good to go.
You can schedule a call with us to talk about your business and your payroll needs. We look forward to talking with you.