Complex Payroll Rules Require Strong Technical Support

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Communication Prevents Small Problems from Becoming Costly

By Chris Keith

One of the most complex tasks a small business must deal with is payroll. Gone are the days of issuing paychecks with just federal and state tax withholdings. Today’s payroll is complicated by factors such as overtime and changing minimum wage rules, temporary tax incentives related to the COVID-19 crisis, and employee benefit plan deferrals – all of which have their own calculation guidelines.

Compounding these factors are emerging issues such as remote work, which may involve employees who work in one state but reside in another, necessitating different withholding calculations for state taxes.

Business owners and their finance departments need more support for payroll than ever before. Outsourced accounting services that provide both ongoing payroll services and high-level technical support on an as-needed basis give businesses the assurance they need that they are complying with all applicable laws and guidelines.

Top Payroll Challenges

Tax payments and compliance reporting. Tax withholding involves complying with the requirements of multiple government agencies at the federal, state and sometimes local levels. Besides withholding the proper amounts for each employee, a business must deposit the withholdings by each agency’s deadline, and penalties for missing deadlines are very high. Moreover, most government agencies require e-filing; you can’t write a check anymore.

Keeping up with the various tax credits that have been rolled out in response to the COVID-19 crisis, as well as changes in tax law enacted in recent years, is daunting. Changes made by the Tax Cuts and Jobs Act of 2017, state and federal actions on minimum wages, and the Affordable Care Act are just a few of the factors that have kept payroll departments in a state of confusion in the past few years. In some locations, cities are taking local action on minimum wages. Moreover, some of these changes are permanent and others are temporary, so keeping track of start and stop dates is crucial to having an accurate payroll. There are a lot of moving pieces.

Pre-tax withholding and deferrals for employee benefits such as retirement plans, flex plans, and Sec. 125 cafeteria plans create further challenges as employers must ensure that deductions are made correctly, retirement contributions and matches are calculated properly and that all funds are submitted in a timely fashion. Again, penalties for miscalculating benefits or missing deadlines are steep.

Importance of Technical Support

Keeping up with the myriad compliance rules, deadlines, and changes in tax law is beyond the capability and time constraints of most finance departments these days. So, the high-level technical support that comes along with outsourced accounting services provides businesses with the confidence they need that they are meeting all the requirements involved in payroll.

Most importantly, putting in place the right technical support for payroll opens up communication channels that help solve small problems when they arise so they don’t become big, costly problems down the road.

If the complexity of payroll raises questions for you, contact your Adams Brown advisor.