Payroll fraud seems to happen a lot, we hear about the bigger cases on the news but like an iceberg, I’m sure there’s 90% more under the surface that we never hear about- probably because they are small instances. If small business would take steps I’ll spell out, they could eliminate this problem. The last thing I want as a small business owner in the payroll business, is to be regulated by the pinheads in Washington but it may come to that.

First, if you use one of the big payroll services like Paychex or ADP, or a large regional one, you’ll be fine. These large service bureaus take all the funds from your account and remit the taxes. These big outfits are audited each year by accounting firms who make sure they are fulfilling their obligations. Many of these big ones won’t bother with some or all of your small local taxes so you will have to handle those yourself, so be aware of that.

Beware of the small payroll services if they are taking custody of all your payroll funds, the pay and the taxes, and remitting the taxes themselves, there is real danger here! What happens is they don’t remit the taxes, and because they make you sign a power-of-attorney that has all correspondence from the government be re-directed to them, you’ll never know when the late notices show up.

Be aware, in case after case, the IRS has ruled even when you’ve been defrauded, YOU are responsible for all taxes and fines. Good luck suing someone who is in jail, skipped town, and has already spent the money. I know of an instance in my hometown where a small payroll service guy defrauded hundreds of small businesses and went to jail, it actually drove businesses into bankruptcy. The guy was living well for a while, trips to Europe, etc. Disgusting. You need to find out if they are audited! Who’s watching them. If not audited, I’d stay away for sure. Too risky.

Other than the small services that impound your funds, fraud happens too when it’s your own employee most of the time. Usually the owner of the small business never had a clue because the person was the bookkeeper, had access to the mail, and intercepted all the nastygrams. How to prevent this? Easy, as the small business owner, either insist all mail come to you first, unopened, or get a P.O. Box so you know you get the mail. Watch for late notices from IRS, State, and local. Insist that bank statements be unopened and you open and look for the tax payments coming out. Get proof that your taxes have been remitted, do not take their word for it, if your employee is stealing, they are already lying to you!  Also make sure there are no phony employees on the payroll, check the records. And for God’s sake, do NOT allow your bookkeeper to sign checks! That’s your job!

At my payroll service, we do not have you sign over power-of-attorney, notices go to the business, but the biggest thing is we do not take custody of payroll monies. We print all checks using the client’s checking account numbers. They can go online every day if they want and SEE that the taxes are indeed getting paid. Everything is completely up front, out in the open, and safe. We have NO access to money, in essence, we are just doing the calculations, and PRINTING the checks for you to sign. It works like a charm.

Fact: 25% of you do-it-yourselfers (and you know who you are) will incur an IRS penalty which averages $670.

Source: Wall Street Journal.

If you want to read the article that talks about this fact, email me, if you ask nicely, I’ll send you a reprint I purchased. Copyright law prevents me from just posting it here without their permission.

You can transfer this risk to someone else by outsourcing payroll, kinda like the way insurance works.

Are you one of those who wants to just to write out your own one or two paychecks?

Maybe you’d like to make your task even easier by having the net pay professionally calculated for you so that you know it is right?

And get the tax payments figured out and have someone keep those records straight for you?

Well, I call this the “Num-Muncher” service. It’s Payroll Lite.

If you just have one employee and like to keep things as simple and inexpensive as possible, give us a shout and we will remove the hard part of payroll, leave you with the easy part, writing the check for the net amount.

Because of YOU!

You see, the perspective of this service is not from me and what I am offering, or the work that I do. The emphasis is on what your experience with my service will be. That you should only have to spend about 10 minutes on your payroll chore. That’s all you should have to spend on it! You’ve got more important things to do, don’t you?

I have refined this business model of mine so that it could not be any easier for you, it is pared back so that you have to do only those things that only you can do, like adding up timecards, putting the hours on a form (a one page form that I make for you), and you emailing or faxing it to me. Sorry, you have to do that.

Then when you get the payroll package, you will have to get that financial data into your QuickBooks or whatever accounting software. But I make that incredibly easy too. A journal entry, all customized just for you with your own account numbers! I will help with this accounting part of it if your people need any. It is so easy I doubt they will need any but I’m there where needed.  

That’s it!

What do you need to do to get started using a payroll service?

First, the timing. It does not have to be the first of the year to start a payroll service. It is easier for the payroll service to be sure but as long as the service gets good Year-To-Date numbers, it can work with that. The new service will need to be able to do the W-2’s. If not the first of the year, the first of a new quarter is best. (April 1st, July 1st, or October 1st)

We will need new W-4’s for all the employees. Good time to update them anyway.

We will need the pay rates, and all the little details on employee’s pay and deductions.

It’s nice to shadow a couple of payrolls to compare the new setup with how the existing payroll is calculated to make sure no detail is missed before switching over.

We need information on electronic tax payments, the passwords used so we can begin making tax payments.

Company EIN number.

State Unemployment Rate information.

Local Tax information.

Voided checks for the company account from which the payroll will be drawn as well as employees getting direct deposit if offered.

An Indiana corporation contracted with a payroll service. The payroll service would withdraw, before payday, all funds for pay and taxes and put the money in the payroll services own checking account. 

It seems the payroll service didn’t pay the taxes as it should have or when it should have and when the IRS started collecting levy’s, the payroll service used payroll wage money to pay the fines. The corporation had to hire another payroll service and deposit funds with it to meet payroll. The corporation filed a claim with the IRS because it was not the cause of the levy.

The corporation lost the case with the IRS. The IRS did not care if the payroll service messed up, the corporation was still ultimately responsible for taxes.

Lesson: My payroll service does not take your funds. You always know that the taxes ARE BEING PAID because it shows up on YOUR bank statement. You see exactly what is going on at all times.

If you use a payroll service, how did you choose them?

Chances are, if you are like most, you didn’t choose them, they chose you. They showed up at your door one day. They probably visited a few times before you said yes. Is this any way to choose a payroll vendor?

If you are still spending too much time on payroll related tasks, if you are not getting the service you deserve, maybe it’s time for you to chose another service.

Here are some points to consider, some questions to ask: 

Do they charge for delivery?

Are the payroll funds just taken from your checking, including taxes, even the ones that aren’t due for months?

Do they offer any kind of guarantee?

Will they withhold ALL the local taxes?

How do they get their fee?

Will they complete the local quarterly tax returns?

How much work do you have to do?

What are they going to charge?

How do you do the payroll accounting to get the payroll into your books?

Where do you call when you have a question or a problem?