Doing employee payroll can be challenging any day of the week, but when it comes to tax time it can be a real nightmare. This is because companies have so many rules that they have to adhere to when it comes to payroll including federal, state and local taxes, as well as the distribution of W2s and 1099s and other documentation.
ADP.com, a leading payroll provider, reports that there are 47 new payroll rule changes every day, and that there were 17,000 proposed tax rule changes in 2012 alone. A good account can go a long way to making sure your company stays on top of things, so can a payroll company that offers employment tax compliance as part of its services. If you don’t stay on top of things, you could risk serious penalties or worse.
XYZ, a Cautionary Tale
In the interest of protecting the innocent, the name of the company and the principle players have been changed.
Dale is the head of sales and bookkeeper for XYZ company.
In 2012 XYZ saw a lot of growth in the past year and converted many of the sales staff from independent contractors to permanent employees. They hired some administrative personnel, for a total of twelve new employees. When the company first started, Dale was put in charge of payroll as part of his duties. When he was just handling the salaries of the CEO, the head of marketing, and his own, and everyone else was a contractor in charge of his own taxes, he had no problem taking care of the payroll and taxes in addition to his other duties. However, when twelve more people hit the rolls, his workload increased exponentially.
Additionally, Dale wasn’t aware that some of the rules had changed, and he ended up making a lot of mistakes that resulted in XYZ facing several penalties in the process. Luckily XYZ was able to hire a professional to sort it all out for them.
They went with an accounting firm that specializes in payroll and employment tax, and also stays up-to-date on the latest changes. They were able to find the correct forms to amend their previous filing, and remove many of the penalties. They were also able to make the correct deductions from that point on, saving Dale and the rest of XYZ a lot of headaches.
And luckily, because XYZ is a tight-knit, family-owned business, Dale was able to keep the job at which he excelled – managing the sales force – and hand off the payroll to someone much better qualified than he.
XYZ company isn’t alone. In 2014 the IRS issued 6.8 million penalties, totaling $4.5 billion, to small businesses that made mistakes on their payroll taxes. While those numbers are down from 2009, when the IRS issued a whopping $7.1 billion in penalties, it’s clear that employment taxes fall under the category of “don’t try this at home” for small business.
Even if you haven’t had any problems with penalties in the past, if you do your payroll in-house, you might want to consider having another set of eyes reviewing your processes and making sure everything is up to date. Whether you go with an accountant or a payroll company like ADP is up to you, either option can give you the professional assistance you need.