• This why you hire a payroll company… to avoid tax compliance issues.
• If you are in New Jersey there are 13 different payroll taxes to contend with. Hire an expert.

2. Have Everyone use Direct Deposit

• You won’t need to pay to have physical checks delivered saving you money. Direct Deposit vouchers can be accessed on-line and don’t need bank stock.
• Direct Deposit vouchers don’t have your routing and account number on them.
• Don’t print your own checks. It is a hidden extra expense (and hassle). You need to pay to have blank checks on hand pre-printed with your bank account information.

3. Give Your Employees Access to Their Payroll Vouchers and W2’s Online.

• Employees lose these all the time. Giving them online access saves you time.

4. Don’t Use a Payroll Service That Requires You Set-up your Company and Employees.

• This is where all the errors are made. If you make a mistake then you are responsible. Any guarantee the payroll company has about tax errors won’t apply.

5. Enter Your Payroll Anyway You Want.

• On-line, Email, Fax, Telephone it shouldn’t matter. What ever is easiest for you should be the rule of the road. You want all the options but you also want someone on call if you need them.

6. Do Business Locally.

• If online chat, navigating a voice response menu, or an offshore customer support center, are your only customer support options then you don’t need the hassle.

7. Your Payroll Company Should Send You an Email Detailing Your Bank Debits Same Day

• When you know what your bank debits will be you can make sure you have enough money in your account.

8. Have Your Payroll Company Do Your New Hire Reporting

• It is required by law in New Jersey

1. Are You Based in New Jersey?

• New Jersey payroll taxes are among the most difficult in the nation. There are seven distinct payroll taxes levied by the New Jersey Department of Labor alone. In addition, New Jersey payroll deductions do not follow Federal Guidelines for what is tax exempt and what isn’t.
• Here is a test… If they don’t know that employer contributions to Simple IRAs, 403B plans, and Legacy SAR/SEP plans are taxable in New Jersey cross them off your list.

2. Do You Have a Guarantee?

• You are hiring the payroll service to protect you from making a costly compliance error. You want the service to guarantee that if they make a mistake they will pay any fines, penalties and interest charges.
• Here is a secret. If you are using an online service then you are doing most of the work. If you make a mistake w/ an employee set-up, entering a payroll, or processing your tax deposits or reporting the guarantee is void. They didn’t make the mistake, you did!

3. Can I Speak with the Owner if I Have a Question or a Problem?

• You are a small business owner. You should be able to speak with one. You shouldn’t be more than one step away from the owner.
• This is what you don’t want: A service that uses data entry call centers, voice response systems, and online chat support.

4. How many clients have you lost in the last year?

• This is a very revealing question. There are usually only two reasons why clients leave. Poor service or high pricing.
• This is how larger payroll services work. They raise their prices every year. Usually during the summer. It is math for them. They expect some clients to leave but the majority stay and their revenue grows.
• Here is a quote from a PayChex earnings release “Payroll Service segment revenues increased 1.1% from the year-ago quarter to $354.8 million, attributable to a 2.5% growth in checks processed per client and an increase in pricing per check. However, the payroll client-base fell 2.2% from the year-ago quarter.”

5. May I see Your Price List?

• If their pricing is not posted on their website, or they won’t give you a price sheet, then cross them off your list.
• This is why most payroll companies hide their prices. They give you a low rate to sign you up and then raise your prices every year. If their pricing was posted then you could always compare your price to what they give their new customers. If it is hidden you never know if you are getting the same price as their other clients.

6. How Many References Will You Give Me?

• You don’t really expect to call a long list of references but this is why it matters to you. The longer the list the more confident they are that you could select any client and get good feedback. The shorter the list the less confidence they have.

So here it is.. Six questions that will help you pick a Payroll Service Provider that would be a good fit for you.  This isn’t a list of how to compare features. It is a list for how to tell if you will be happy with the service!

1. How much experience does the Independent Payroll Provider have?
   The amount of experience any given professional has goes a long way towards their level of expertise. Ideally, you want to choose someone who has been in business as an independent payroll provider for at least five full years.
2. Can the Independent Payroll Provider provide adequate references?
   An independent payroll provider needs to be reputable. Make sure they can provide you with at least 15-20 local small business references. Follow up with these references with questions like:
   • How long have you worked with the payroll provider?
   • What has the overall relationship been like?
   • Are you happy with the value you’ve received?
   • Have there ever been any issues with payroll processing?
   • Have there ever been any issues with payroll tax compliance?
3. Does Independent Payroll Provider offer a guarantee?
   You want to choose an independent payroll provider that stands behind their work. Make sure that they guarantee they will take responsibility for fully managing your payroll taxes, and will pay the tax fines and interest on any tax penalties caused due to an error on their part.

What is Payroll Tax Impounding?
Payroll Tax Impounding is when your payroll tax liabilities are automatically deducted for each paycheck. Your payroll provider will then submit your tax payments to the appropriate government entity when they are due.

What are the benefits to Payroll Tax Impounding?

• It is easier for the business owner. The business owner does not need to make tax deposits to the tax authorities
• The business owner is insulated from penalties due to late or incorrect deposits. Since the payroll service will be responsible for making the deposits they are responsible if a mistake is made.
• Budgeting is easier. Business owners that do not take advantage of tax impounding may not leave enough funds set aside to make the deposits when they are due because tax rates are always changing.
• Payroll reporting is more accurate. The deposits shown on the quarterly payroll filings to the tax authority will always match the payroll tax liability. This avoids payroll issues later on.
• If you receive questions from a tax authority your payroll service can intervene since they are your they can represent your for payroll related matters.

Let’s take a look at a couple of real world examples:

Doctor Al was doing his own payroll. He did it for years. He had around six employees and a retirement plan. Doctor Al paid the wrong amount and he didn’t realize it. The quarterly reports were complicated and he made math errors. It turned out he was making his deposits late but was overpaying each quarter. The IRS would send him a letter indicating that there were deposit issues. They didn’t issue any penalties for late payments because the doctor had a positive balance each quarter. He didn’t know what to do with the IRS letters. This continued until he decided to hire a payroll service. We were able to intervene on his behalf. He received a refund of over $2000. His deposits are now made on time. And he has no more letters from the IRS.

Ken is owner of a construction company. He had been doing his own payroll but hadn’t budgeted enough money to pay his payroll taxes. When he contacted us he had already received letters from the IRS threatening to seize property or rights to property. The IRS had developed a payment schedule for him but significant penalties had already been incurred. We impound the funds matching his tax liability with every payroll run and make the tax deposits and report filings on his behalf. He hasn’t had anymore problems with the IRS.

1. They answer your phone calls (or emails).

What happens when you need to get in touch with your payroll company? Do you need to navigate a menu of options, or enter a five-digit extension? Are your emails answered by a human, or a robot?

When you try to get in touch with your payroll provider, it’s best to have an real human on the other end. This should be someone who is familiar with your account, so they can answer any questions, concerns, or complaints in a timely manner.

Bottom Line: Make sure your payroll company gives you appropriate, prompt responses!
 

2. They address your concerns.

As a small business owner, you’re going to run into your fair share of tax notices from the state and IRS. Some of these letters can seem intimidating, or you may have questions about what next steps are needed.

Your payroll provider should be responsive to your concerns about your payroll taxes. Sure, many of these letters are simple notices, but you’re bound to have “what should I do next?” questions. It’s important to you and your business, that you understand what these notices are, and why you’ve received them.

Bottom Line: Make sure your payroll company adequately
addresses your concerns!
 

3. They listen to your complaints.

What happens if your employees’ checks aren’t going to the right place? Or if you need to make a correction to your account?

Of course, no one ever wants to talk about things going wrong. And most payroll companies will do their best to avoid issues. But if a problematic situation ever does come up, you should feel confident that your payroll company will handle the issue in a prompt and professional manner.

Bottom Line: Make sure that you can trust your payroll provider to correct any issues that may come up!
 

4. They’re helpful, courteous, and knowledgeable

Who do you get when you need to ask a question? Is it some data entry clerk? Is the person on the other end of the phone just going through a task-list of questions? Or do you have to wait for a call-back while your question is escalated up to someone who is actually knowledgeable?

When you speak to your payroll provider, you deserve to talk to an actual payroll professional. Talking directly to a payroll expert means that you get simple, straightforward answers to your questions. They should make you feel comfortable and confident when it comes to your payroll and payroll tax compliance.

Bottom Line: Make sure that the person your payroll company has you talking to is a payroll expert!
 

5. They value your business.

Are you just another account that someone’s been tasked with? Would they personally handle an unusual request for you, or call a tax authority on your behalf? Do they take the extra steps to make you happy and keep you as a customer?

Your payroll provider should respect and value your business. This is actually where you’ll see a lot of payroll providers cutting corners, especially large and regional operators. Surprisingly, they expect to lose 10-20% of their clients every year, but this is just a calculated trade-off between losing clients and increasing revenue per client. In other words, they can afford to lose you. That’s why it’s important to choose a payroll provider that cares about your business. You know you’ll get better service when their goal is to keep every client happy.

Bottom Line: Make sure you’re receiving value from a payroll company that values your business.
 

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<a href="http://www.pieperpayroll.com/articles/understanding-nj-payroll-taxes/"><img src="http://www.pieperpayroll.com/img/nj-payroll-taxes-pieperpayroll.jpg" alt="Understanding NJ Payroll Taxes" /></a>Source: <a href="http://www.pieperpayroll.com/">www.PieperPayroll.com</a><br/>
 

What are Payroll Taxes?

Payroll taxes are the Federal, State, and sometimes local taxes that are owed when wages are paid to an employee. There are two parts: the company portion that the employer owes and pays, and the employee portion which the employer withholds and pays on behalf of the employee.
 

How much are Payroll Taxes?

Our example above is based on a New Jersey employee with a gross pay of $100.00 and based on the tax assumptions described below.

From the employee’s perspective their take-home (net) pay would be $75.98 meaning that $24.02 would be their share of the payroll taxes.

The employer also owes payroll taxes, as shown on the left side of the graphic. In this example they owe an additional $11.75 meaning that the effective sot of an employee that is paid $100.00 is really $111.75
 

Withholding Taxes (Income Taxes)

These are employee taxes. As an employer it is your responsibility to withhold these taxes based on the current tax schedule and how the employee has completed their W4 form. The W4 form is the form that tells the employer the filing status and exemptions that help to define the tax rate that should be applied to the employee’s wages. When you hire a payroll service these taxes will be calculated automatically using sophisticated software. The software will annualize the pay for any given pay period in order to select the proper tax rate. If an employee desires, they can instruct the employer to withhold at other than standard rates. They use the W4 form do to this. In the attached example we assumed a federal tax rate of 15% federal and a New Jersey tax rate of 2%.
 

Social Security Taxes

There are both employee and employer components to these taxes. These taxes are levied on the first $106,800 in wages (in 2011). Generally the wage base is indexed with inflation and can change from year to year. In years past the tax rate was the same for both employers and employees at 6.2%. In 2011 the employee rate was temporarily lowered to 4.2% as part of economic stimulus packages.
 

Medicare Taxes

As with Social Security taxes there are both employee and employer components. These taxes do not have a maximum wage base. The tax rate is 1.45% of wages for both employers and employees.
 

Federal Unemployment Taxes (FUTA Tax)

This is an employer tax only. The FUTA rate is 6.2 %, but you can take a credit of up to 5.4% for SUTA taxes that you pay (this is a state level calculation). If you are eligible for the maximum credit (and in 2011 New Jersey businesses are) your effective FUTA rate will be 0.8%. Based on a wage base for FUTA of $7,000 this amounts to $56/year. You will stop paying FUTA for each employee once his or her wages exceed $7,000 for the year. During the last couple years several states have had to borrow from the Federal Government to fund their State Unemployment budgets and as a result businesses in those states (e.g. Michigan) have had to make larger Federal Unemployment Tax contributions. Your payroll service will know about these. If you are doing payroll on your own be sure to check with your state department of labor or employment. In our example we showed a contribution of 0.8%
 

State Unemployment Taxes (SUTA Tax)

Generally, your SUTA tax rate is based on the amount of unemployment claims that are filed by employees that you have terminated. Your tax rate will depend on your experience with the state. When your business is new, your SUTA tax rate starts at a starting rate (new business rate) defined by the state and rises or falls based on the number of claims. While this is usually just an employer tax some states also have an employee component. In New Jersey new businesses currently start at a rate of 2.6825%. If, over time, your business has had a lot of unemployment claims made against it your rate will be higher. If not, your rate will be lower. In New Jersey I have seen employer unemployment tax rates be as high as 5.8% and as low as 0.5825% (rates that low are rare). The tax rate is applied against the taxable wage base for the year. In New Jersey the taxable wage base in 2011 is $29,600 which is higher than most states. Just a few states have an employee unemployment tax as well as an employer unemployment tax. New Jersey is one of them. That rate doesn’t vary based on experience and is currently 0.3825%. New Jersey has a somewhat complicated administration of the unemployment tax. The taxable wage base is established from calendar year to calendar year (January 1st through December 31st). However, the employer specific experience rate is revised mid year meaning that your employer rate is effective from July 1st through June 30th of the next year. To make things more complicated New Jersey never calculates the experience rates until after June 30th. This means that New Jersey business owners aren’t told their new experience rate until late in August or early September even though they should be administering their payrolls at the new rate effective July 1st. Payroll companies know how to take this in stride and will true up the tax liability for any payrolls run after July 1st but before the new rates are issued. In order for this to work well the business owner has to inform the payroll serice of any changes in their rates as soon as they are notified by the state. In our example we used the new business rate of 2.6825% for the employer and 0.3825% for the employee.
 

Disability Taxes

Most states do not have a disability tax but New Jersey has both an employer and employee tax. As with New Jersey Unemployment taxes, the employer tax is experience based and the employee tax is fixed. The taxable wage base is the same as with Unemployment. In our example we used the new business rate of 0.5% for the employer tax and 0.5% for the employee tax rate.
 

Work Force Development Taxes

Most states do not have a Work Force tax (some times called a job training tax) but as with the Disability and Unemployment taxes New Jersey has both an employer and employee tax. The Work Force Development Tax is not experience based and is not changed very often. The taxable wage base is the same as with Unemployment and Disability. In our example we used the standard rate of 0.1175% for the employer tax and 0.0425% for the employee tax rate.
 

Family Leave Insurance

This New Jersey employee based tax is a relatively rare tax but in its couple years of existence the tax rate has changed every year. In 2011 the tax rate was lowered to 0.06%. The wage base is the same as with Unemployment, Disability, and Work Force Development.
 

Health Care Tax

Another relatively rare tax, this is not levied in New Jersey. Massachusetts is an example of a state that levies this employee based tax. Our example does not include this tax.
 

Worker Compensation Tax

Worker Compensation Insurance is required in every state but most states allow the tax to be administered by private insurers. There are a handful of states that do not allow private insurers to handle this tax and administer it directly e.g. Washington. They require the tax to be submitted w/ your other payroll taxes. Our example does not include this tax.
 
For information on Federal payroll tax requirements, check out IRS publication 15, Circular E. For information on State payroll tax requirements, contact your state’s revenue and labor departments.
 

The demand on funding was due to high unemployment in the early 70′s. The loans were repaid by 1987 but the Feds continued to approve extensions in the surtax to pay for other budgetary items. It appears that this is about to change as the IRS has seen no movement by Congress to extend this surtax.

Form 940 is an annual report for filing FUTA liability for the year. Pieper Payroll files this form for all of their New Jersey and out of state payroll clients. As a result of this potential change, the IRS is developing a new form 940 for 2011 that will actually allow for employers to designate two different FUTA tax rates for the year. For 2011, Pieper Payroll will be filing the new form in Jan of 2012

The current FUTA tax rate is 6.2% on the first $7,000 in wages paid to the employee for the year. This rate will apply for wages paid from January through June of 2011. If the surtax expires, The FUTA rate will fall to 6.0% for the second half of the year. The new form will also allow for indication of wages paid and liability incurred for the period July through December at the new rate. Pieper Payroll is already compliant with the proposed changes.

Remember that Feds grant a 5.4% credit for State unemployment taxes meaning that the FUTA tax will actually fall from .8% to .6%.

Keep in mind that those states that borrowed money from the Feds to fund their unemployment insurance programs these past few years, and have not repaid those loans by November of 2011, will be subject to at least a 0.3% reduction in that 5.4% credit. Employers in these states will see an overall increase in FUTA tax as a result. Currently 22 states and the Virgin Islands may be subject a reduction in their FUTA credit including New Jersey.

Pieper Payroll actively monitors these changes and no action is required by our clients to assure compliance.

Low Cost: The best values are usually offered by local payroll services
as they do not have the same overheads as the large national companies.

Today’s payroll services are so cost effective it is usually one of the first business services that is outsourced by a small business owner. Payroll companies have inexpensive packages that are no more than a few dollars
per check, including services like employment tax calculations and direct deposit. Local payroll services generally charge lower rates because they
do not have the same overhead as the national providers.

Accuracy: An owner operated payroll service frequently offers the best track record for accuracy because an owner operator is highly knowledgeable about your payroll situation.

Business owners are concerned with accuracy because one mistake can result in penalties, fees or interest chargers levied by Federal or State tax agencies. When you use a full service payroll company they take responsibility for the accuracy of your payroll. Surprisingly local payroll companies have the best track record in this area. The reason is that calculation errors are very rare
as software does a good job with the math. Errors, when they are made, are made by the data entry operator. The large national payroll companies have lots of turn-over and do not provide extensive training for special payroll situations. Owner operated payroll companies have the advantage due to
the expertise of the owner operator.

Convenience: Local payroll services are more convenient to work with than the large national services that operate large data entry call centers.

All payroll services will save a business time when compared to the effort required to do payroll without a service. However, a local payroll service is frequently more convenient than the national providers. Local payroll services invariably do not require you to provide your payroll input at a scheduled time, or wait for a return call from your assigned representative
(if they call back at all).

1. Contact Your Employer: Inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address.
2. Contact your Payroll Company: If your employer was dealing with a local payroll company you are probably in luck. Smaller local payroll companies keep good records and are probably on a first name basis with the employer. They can easily check to see if there is a problem and re-issue the W2.
3. Contact the IRS: Call the IRS for assistance at 800-829-1040. Based on the information you provide to the IRS, they will contact your employer for you. The IRS will also send you a Form 4852 which is a substitute for Form W-2. They will instruct you how to complete the form so you can file your taxes.

Always review your W2 carefully to make sure your Social Security Number is correct. If it isn’t advise your employer immediately so that it can be corrected before your payroll company submits the W2’s to Federal and State
reporting agencies.

All New Jersey based Employers must file a Gross Income Tax Reconciliation of Tax Withheld (Form NJ-W-3) each year to report the total monthly tax remitted, wages paid and withholdings. Registered employers must file Form NJ-W-3 even if no wages were paid and no tax was withheld during the year. The due date for filing the reconciliation is on or before the last day in February following the close of the calendar year.

If you are doing this yourself a copy of each employee’s Federal Wage and Tax Statement (W-2) must be enclosed with the NJ-W-3. You must also enclose a totaled listing, such as an adding machine tape, of income tax withheld as shown on the W-2′s.

Please note that in New Jersey each employee’s W2 should show their contributions to New Jersey State funds for Unemployment Insurance, Workforce Development, Disability Insurance, and Family Leave Insurance. These totals should reconcile to filings made during the year on your quarterly NJ-927 return.

So what payroll options are available for New Jersey Small Business Owners? Well, here are three popular options:

1. Accounting software (e.g. Quickbooks) frequently appeals to “do it yourselfers”. While on the surface it is the least expensive option, there are several hidden costs 
   1. They take more of your time.
   2. You must subscribe to additional payroll and tax databases.
   3. You must purchase preprinted checks, micr ink and frequently dedicate a printer
   4. You are exposed to fines for compliance issues if by missing or miscalculating taxes,
      or making errors with compliance reporting
2. Some Business Owners have experimented with the relatively newer Internet based online payroll. A cost effective solution for a few, internet based payroll services are basically another “do it yourself” solution. It is it is important to understand that these services will not take responsibility for compliance issues that result from errors in set-up, data entry, and compliance reporting.
3. A payroll service is the most popular payroll option. Outsourcing your payroll to an experienced New Jersey payroll provider will save you time and reduce the risk of payroll compliance issues. Since most payroll outsourcers have very good technology, and take responsibility for compliance, service and price becomes a key differentiator. While most large businesses tend to use large National providers like ADP, PayChex, or Ceridian, smaller businesses frequently find reputable locally based independent providers are able to give them more attention and offer more reasonable rates.