Payroll taxes due to local, state, and federal governments are a major interest for business. For the principal and signing authorities in particular this is a major issue because should the business fail and should these liabilities not be paid current they become the obligation of the principals and signing authorities. Ignorance is no excuse and bankruptcy does not offer relief. Because of this relying on a payroll company until you are a relatively large organization with an accounting department is wise. Even in this case taking steps to protect this area from mismanagement and ensuring as principal that you actively oversee this responsibility is wise.
There are a number of good payroll outsourcing alternatives. Paychex and ADP are probably the best known. You can choose to either pay the payroll tax yourself or deposit payments with these companies and they will remit this for you to the appropriate jurisdictions / revenue collectors.
Simply establishing this relationship is not enough however. As principal there remains plenty of issues that can create a tax liability for you personally. Because of this, principals and their senior managers should take a few simple steps to protect themselves. The main steps I advise are the following:
1) Sit down with a good CPA with payroll expertise. I define good as a CPA who can provide years of references backing their reliable calculation and oversight of payroll tax. Ask the CPA to explain the percentage of each pay check for each jurisdiction you operate in that should be anticipated to be paid. In other words, if employee John Doe receives $10,000 in the city of Topeka, Kansas what will your payments be above the $10,000 to the federal government, to the state of Kansas, to the county where Topeka resides, and to the city of Topeka.
2) Each month verify that payments for each jurisdiction are reasonably consistent with the expectation given from step 1. If not, find out what the situation is and work directly with your payroll company to rectify any shortfall or overpayment. Verify at the time that all payments are made on time or early.
3) At year end ask your accountant to review the payroll tax payments for accuracy and assurance that you are likely fully paid to all jurisdictions.
These simple steps will protect the interest of the entity, your employees, and your interest as principal. More importantly, the tax systems are very inflexible on payroll tax receipts. Effective management will keep you clear of very aggressive enforcement and collection laws.
