Many companies will export their payroll responsibilities to a third party, who will handle processing payroll, paying employees, and filing payroll tax returns. There are a lot of variations on how this happens in actuality, and the services are not universal across the block. Here are some of the typical options for paying employees through an outsourced payroll provider.
What are some of the Basic Services Provided by Payroll Providers
The typical process flow for a payroll provider is to receive a data file provided by the Company with payroll data including employee, wage amount, location, and deduction elections, and to process payroll on their behalf based on this information. The payroll provider will then calculate payroll taxes on the payroll amount and then submit the payroll to the banks to make the appropriate direct deposits as needed. Payroll taxes are paid on the required cadence (monthly, quarterly, etc.) depending on the size of the entity and the payroll provider will often profit based on the float of the payroll during this time period.
Other Options when Outsourcing Payroll
Some employers will use an outside payroll service as a professional employer organization or PEO which will handle the hiring of employees as well. This provides a wide range of options for companies who are looking to hire in countries where the business does not want to set up a tax presence. This is particularly an effective setup for those who are looking to expand internationally without the issues that can arise when expanding into certain countries. When doing so the filings will be handled by the third party payroll company.