Payroll Service Bureau

A payroll service bureau is an accounting business whose main focus is the preparation of payroll for other businesses. Such firms are often run by Certified Public Accountants, though a typical payroll processing company will refer to itself as a service bureau rather than a CPA firm, to distinguish its payroll services from the general tax and accounting services that are generally not offered by a payroll service bureau. The typical client of a service bureau is a small business - one just large enough for payroll to be complicated to the point of a hassle, but one still small enough to not merit its own full-time payroll department.

The tasks that can generally be expected of just about all payroll service bureaus are as follows:

• 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 to be paid by employer (such as Social Security and Medicare in the US)
• Filing of quarterly and annual payroll reports
• Depositing of withheld amounts with tax authorities
• Printing and filing of year-end employee tax documents such as Form W-2.

Additional services may be offered and vary from firm to firm.

• Management of retirement and savings plans
• Health benefits or "cafeteria" plans
• Timekeeping, either online or in the physical form of "time clocks"
• Producing export files containing payroll/general ledger data to be imported into a client's accounting software
• Human Resources (HR) tracking/reporting
• Workers' Compensation Insurance intermediary

In the United States, it is usual and customary that any penalties or liabilities incurred by a service bureau's mistakes are borne by the service bureau. In practice, they are more successful at having penalties and other fees abated than most other businesses, mainly because tax authorities have a stake in the success and longevity of service bureaus simply because they make the tax man's job easier.

There are several ways a service bureau can move money from the client to the people whom the client must pay. The simplest way is when a service bureau prints checks on blank check stock, printing the client's account number in MICR digits at the bottom of the check, resulting in the funds being drawn directly from the client when the check is cashed. Other bureaus initiate automated clearing house (ACH) transactions from the client, and remit payment either electronically or in the form of paper checks against the service bureau's holding account. Because payroll transactions can be enormous (thousands to hundreds of thousands per pay period per client), service bureaus often consider the interest earned ("float") on those amounts in the interim to be a substantial source of revenue. The interim is the period of time between when the funds are collected from the employer (client), and either when the paper checks are cashed, or when electronic payments (in the case of taxes) become due on their due dates.