Basically, there are three main options to consider for business owners to use payment arrangements for their company’s employees. Each offers its advantages and disadvantages that generally depend on the number of people employed. A very small business just starting out will have completely different needs than a large corporation with thousands of workers.
The most basic is a manual payment agreement. This can work very well for someone with less than ten employees. It’s perfect for anyone starting a new business with very little cash flow. All the work can be done by the employer and there is practically no financial outlay. However, there is a considerable amount of time involved. This may be the biggest drawback, aside from the possibility of making a tax-related mistake.
Calculating taxes correctly is a big part of any business. Absolutely accurate records must be kept and available at all times. The end of the year is especially important as reports and W2 forms need to be ready on time. Also, there may be 401K or other retirement plans and health insurance deductions.
Many medium-sized businesses, those with less than fifty employees, find that specialized computer software can work very well. The first big advantage is that it saves a lot of time. The personal information of each employee is entered and the program solves the rest. It will even handle year-end forms and tax reports. There is much less room for an expensive mistake, and the programs are usually quite reasonably priced.
Large companies with hundreds or even thousands of workers often use an external service to handle payments. Although it is the most expensive, this arrangement has many advantages. There is much less room for mistakes, and in case one does occur, it should be covered in the contract.
This protects the company from liability and tax concerns. Services like direct deposit may also be available, which is a big plus for employees. These external companies are usually very efficient and up to date with the new tax laws.
The choice of payroll systems is really determined by the number of employees. Also for the amount of liability that the employer wishes to assume. Saving money by writing your own checks may seem like a great idea, until you’re faced with a serious tax situation that may require expensive legal help to resolve.