Do you use a third party payroll management service? If so, it is critically important to keep your finger on the pulse of your payroll processing and employment taxes.
Outsourcing payroll does not mean your company is immune from IRS scrutiny when it comes to unpaid employment taxes. Relying on an outside payroll firm to process your payroll and handle employment taxes does not waive your liability for any unpaid taxes, now or in the future. Could you be in danger of getting stuck with a big, unexpected tax bill?
According to The Wall Street Journal article, “Tax Surprise: When Payroll Firms Implode,” approximately “four in 10 business owners farm out management of their payrolls.” But many are being faced with the downside of this strategy. The article tells the story of the owners of a family flower shop in Baltimore who were bowled over by a $22,000 notice of unpaid employment taxes due to the IRS. Like many businesses, they thought the notice was a mistake. After all, they contracted with a payroll firm that “reliably collected and paid the shop’s taxes for more than a decade.” To their surprise and dismay the $22,000 notice was real. The payroll firm the flower shop contracted with had filed for bankruptcy in March and is currently being investigated for possible fraud. The flower shop owners are on the hook for the “lost” $22,000.
Although bankruptcy can sometimes be avoided when a larger payroll firm scoops up smaller struggling firms, the risk persists and continues to wreak havoc on businesses counting on dependable payroll services.
Bankruptcy is not the only peril you face when dealing with payroll services. During the past five years, many smaller payroll firms have been accused of pocketing over $300 million in taxes from their clients.
Business owners should be alert to these dangers. While third party payroll management is an advantage for businesses that lack the time and resources to keep up with changes in taxes and employment laws, the reliable monitoring and auditing of payroll processing and employment taxes is equally important. Gray, Gray & Gray encourages our clients to conduct regular audits of their payroll processing. Doing so helps to ensure accuracy of processing and verifies employment tax payment, helping to avoid any unpleasant surprises for your business.
If you have any questions about monitoring and employment taxes, please contact Gray, Gray & Gray at (781) 407-0300.