A payroll outsourcer is an accounting firm or service bureau that processes payroll for other businesses. The typical client is a small business - one large enough for payroll to become a hassle, but small enough to not merit its own full-time payroll department.
The following services are typically included in a payroll outsourcing agreement:
- Printing of employee pay checks on time for payday
- Direct deposit of pay into employee bank accounts, when desired
- Appropriate calculation and withholding of federal, state, and local taxes
- Calculation of payroll taxes (Social Security and Medicare) to be paid by employer
- Filing of quarterly and annual payroll reports
- Depositing of withheld amounts with tax authorities
- Printing and filing of year-end employee tax documents, including W-2s.
Additional services may include:
- Management of retirement and savings plans
- Health benefits or "cafeteria" plans
- Timekeeping
In the United States, it is customary for the payroll provider to absorb the cost of penalties or liabilities incurred as the result of a mistake made by the payroll provider.