Payroll Services Can Provide Check Fraud Protection

Small business owners, have you ever been afraid of check fraud against your company due to a company issued payroll check?

Seattle, like most other major cities, has had a history of this problem.

If you have 10 employees that you pay with live checks twice a month. That's twenty pieces of paper out there with your bank account information (and signature) every month, just from payroll.

In their 2012 Report to the Nations, The Association for Certified Fraud Examiners (ACFE) revealed a few key challenges...

"Check tampering was three times as common and payroll skimming schemes were noted almost twice as often in smaller organizations than in their larger counterparts"

"Most occupational fraudsters are first-time offenders with clean employment histories. Approximately 87% of occupational fraudsters had never been charged or convicted of a fraud-related offense, and 84% had never been punished or terminated by an employer for fraud-related conduct"

If you're worried, here's something to look into if you have to pay employees via check...

Most payroll services now offer a check fraud protection service whereby payroll checks are drawn off of the payroll services' bank account. The checks issued then have the payroll services' signature and bank account numbers on them instead of your company's.

The NFIB made some recommendations last year to reduce a businesses chances of experience payroll check fraud. #5, Positive Pay, is an additional service, with an additional cost, on the banking end - but your payroll services company may likely have a Check Fraud Protection Option...which you can also pair with the NFIB's recommendation #7, Direct Deposit.

Setting Up Payroll for Employees in Multiple or Different States

Setting up payroll for employees in multiple or different states can be tricky as most employers, (especially small business owners), and most people in general have likely only had experience paying payroll taxes in their home state.

Technology has made it possible for small business owners to reach across state lines, coast to coast, and beyond to find the most capable employees to fit their company vision and do 'the work.' This type of reach has expanded the wonderful possibilities of business for these companies and allowed them to find talent that may not be available to them locally, but it has also created some challenges in terms of payroll processing that can impact the business from a compliance standpoint and from an employer-employee relationship standpoint.

These types of issues can result in penalties, fines, and employee turnover - which can be costly.

The most important thing to remember is that every state is different and even some cities and local municipalities have their own taxes that may need to be deducted from the employee's pay depending on where they live, where they work, or both.

Below are some of the 'State Level Taxes' to watch out for.

State Income Tax
State Unemployment Tax
County Taxes
City Taxes
Local Taxes (School District Taxes, etc...)

These taxes may or may not apply depending on the state, city, or county the employee is employed in. Also, it is VERY important to take note of where the employee lives and where the employee works - which may be two different states (this occurs quite often in certain regions of the country) - and you will be paying different state taxes to the lived in state vs the worked in state.

The IRS and State Governments are watching you to make sure you're in compliance and your employees are counting on you to get their paycheck calculation correct.

I see a lot of small business owners in particular lean toward outsourcing in these situations. I have numerous 2 to 7 employee companies that carry employees in 2, 3, 4, or more states, and the compliance risk is often something more cost effectively managed by a payroll processing company.

If this is something impacting your small business and you have questions about what outsourcing looks like, free to reach out to me via phone or email.

Making a Mid-Year Switch in Payroll Services

Making a Mid-Year Switch to a Payroll Services Company isn't as challenging as it used to be and shouldn't cause you to lose any sleep.

Many years ago, a mid-year conversion would cause employees to receive two W2s at year end, and make the current quarter filings a potential mess.

Thank goodness technology has caught up.

I generally see the following scenarios when bringing on a new client for payroll and tax filing services...

Current System - Transitioning To - Payroll Services Company

1. In-house payroll (using software) - to - Payroll Services
2. Manual payroll (using spreadsheet docs or doing payroll by hand) - to - Payroll Services
3. Payroll Services (using another p.s. company) - to - Payroll Services
4. Accountant/Bookkeeper - to - Payroll Services

In any of these cases, the same approach is usually taken with the Payroll Company:

• You'll want to exchange copies of the Quarterly Filing Reports (Both Federal and State(s)) for any of the Quarters that have passed so far this year.
• You'll want to exchange payroll reports for each payroll so far in the current quarter, so that they can accurately file and deposit for the current quarter.
• You'll want to grab a Year to Date Payroll Report (Jan. 1st - Today)
• In both the per payroll reports and the year to date report it is important that those reports be broken down as follows:

Employee Name: Hours worked | Gross Pay - Taxes - Deductions = Net Pay

This is done to make sure the Payroll Company knows who's been paid what, and what taxes and deductions have come out of who's pay.

After that you're just looking to pass along Employee W4 information and possible Direct Deposit Information if applicable.

The Payroll Company may want to see receipts of tax payments made so far during the current quarter and may ask if there are any taxes due from previous payrolls you would like them to deposit on your behalf.

After your new Payroll Services Company has set up your account, and before you begin processing payroll with them, you'll want to verify that the data in their system matches that of the data on the reports you turned over or uploaded to them.

Verify the Employee Data as well, but its a good best practice to ask your employees to verify their W4 information on their first paystubs also.

Keep an eye out and don't be afraid to ask questions. And while service and results will always vary based on individuals and companies involved, there shouldn't be any technical reason to hold back in making a change in Payroll Services mid-year if you trust the people you're working with and they have a solid history of helping other companies make a transition.

Payroll Taxes Go Up for All in 2013

Prediction: About two weeks from now, an employee at your company is going to call on human resources, or their manager, or the business owner, or you, and ask this question:

"How come I'm getting paid less, they passed the fiscal cliff thing...?"

I'm being facetious of course, but the newly passed 'fiscal cliff bill' has been highlighted as keeping a tax increase from hitting 98% of Americans.

...And that is true in regards to federal income taxes, but what was interestingly (and likely intentionally) left out of the President's late night speech on Jan. 1 was the sunset of the social security payroll tax holiday.

As a result of that sunset, the employee portion of the social security payroll tax will increase in 2013 from 4.2% to 6.2%. Click here for the new IRS Guidance.

A 2% increase for a family earning $50,000 means $1,000 less in take home this year. A family earning $100,000 takes home $2,000 less this year. There is a cap on the tax at $113,700.

Unfortunately today, very few working employees truly understand the taxes and calculations that impact their paycheck. Business owners, managers, and hr directors are likely to have to deal with a number of questions around this fact over the next number of weeks. 

Fiscal Cliff Diving for Small Business Owners

Jeepers, its been a year since my last post! I realized my hiadous started when my second child went mobile (parents know what that means...). Time to get back at it.

Fiscal Cliff !!! Yes its an overplayed term, but here's what is likely to happen...

Since its December 22nd and Congress is vacationing for the holiday, there are only two likely outcomes that will happen upon their return: #1. No deal by Jan 1 or #2. A short term fix to be adjusted in 2013.

Either of these paths mean a pain in the rear for small business owners trying to manage payroll.

For those managing payroll in-house using software, you'll likely have to perform a download of the tax tables that will be used starting Jan.1. If the download doesn't work, then you'll have to spend time with customer service. Hopefully service is state-side and they have a large team because if the download didn't work for you it didn't work for others.

You will have to do this twice - because there will again likely be adjustments at some point in Jan/Feb, maybe even March and the adjustments to the income tax tables or payroll tax holiday will likely be retoractive for some tax payers (maybe some or all of your employees).

What my clients are telling me...

I'm hearing owners and managers who have done payroll in-house for years finally consider outsourcing because they don't have the time to spend dealing with these adjustments and making sure they are correct. Obviously incorrect payroll tax calculations = fines and penalties.

It seems outsourcing payroll is a viable plan for the next six months to a year for even the most 'anti-outsourcing' small business owners, at least until we get some stability in the tax code.