Avoid tax penalties by choosing the right payroll partner

Choosing to partner with a payroll firm to take on the administrative functions that occur when you have employees is a smart move. Investing a few minutes to ask key questions will help you avoid loosing money and incurring the ire of the IRS.

A resent article in the Wall Street Journal "When Payroll Firms Implode" tries to point out the downside of working with small payroll companies, instead what the author highlights is the need to ask better questions. The company you hire to process checks and pay taxes on your behalf should be under the same scrutiny as an employee. To minimize your chances of ending up like the business owners in the article here are some questions to ask when evaluating a 3rd party firm to deposit tax money on your behalf.

How often and by what means do you notify clients about their ability to see that you have made tax payments in a timely manner?

As a business, once you register for an EIN or TIN you will automatically be enrolled in the IRS EFTPS. You can see all tax payments that have been made to your account with the IRS whether by you or a 3rd part agent remitting tax dollars for you. Your payroll company is required to notify you of this fact and provide information so that you can take a look any time you choose.

Do you have any insurance policies in place to protect me from you?

I am always surprised that more business owners don't ask questions like this. It is well worth the expense of a company to put clients at ease by have coverage for them. A policy covering client losses due to criminal activity of the firm or it's staff is a good place to start. In addition, insurance covering errors and omissions specific to tax payments made to a client's tax account with the Feds and State is in order. 

Do you handle your own tax filing for your clients?

You have outsourced your payroll administration to a company who further outsources the tax payment process to a 4th party that you have not clue about. If something goes wrong that just adds one more layer you have to weed through to get YOUR tax liability issue resolved. Even when everything is running smoothly and you have a tax question you will have to wait for the company you hired to get answers from the company they hired to make payments to the IRS and State collection agencies. No thanks, the buck should stop with the company you hire or finds someone else. 

What questions would you ask of a potential payroll provider as it relates to tax payments?