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Three Questions to Ask Your Payroll Service

How to evaluate whether your payroll service is working for your business.

Scott Bloom was tired of hearing the complaints. The payroll service he hired to handle payroll needs for his businesses performed well in the beginning. But suddenly the outfit was missing payroll checks and sending incorrect reports.

"They never submitted a wrong return to the IRS or state, but a couple of times I had to write checks out of the business account to get employees their paychecks on time," says Bloom, who owns Bloom Real Estate Group and is a principal of Powerhouse Business Brokers, both based in New York.

"Payroll is such an important piece [of your business], with critical penalties if it's not handled correctly, so you need to be sure you're working with a skilled provider," says Steven J. Elliott, tax director at Schwartz & Co., an accounting firm in Bellmore, N.Y.

It's a good idea to give your payroll service a checkup now and again to be sure you're getting the best service at the best value, Elliott advises. He suggests asking the following questions.

Where to Look
Many accounting and bookkeeping firms offer payroll services, so going local with a reputable firm is always an option. If you're looking for bigger fish, here are some popular options

ADP
CompuPay
Intuit Online Payroll
Paychex

Do they offer guarantees? From time to time, mistakes happen. When they happen with payroll submissions handled by a third-party provider, the penalties and interest can still be steep--and your responsibility. Ask what kind of protections the company offers in the case of mistakes and who pays the penalties and interest. "Most of these companies will pay the penalties if they make a mistake, but few will also take responsibility for the interest," Elliott says.

Are you using the services you pay for? If you just need paycheck services, you shouldn't have to pay for other bundled services you don't need. Many of the larger providers offer services like tax-compliance assistance, insurance services and time-sheet management. Be sure your provider allows you to pick only the services you need.

What's their track record? Bloom's staff asked around and got recommendations of other payroll services before making a switch. Elliott suggests doing basic due diligence--search for complaints about the service online and check in with the Better Business Bureau and your state's department of banking to see if complaints have been issued, especially if you're considering working with a smaller provider.

Gwen Moran is a freelance writer and co-author of The Complete Idiot's Guide to Business Plans (Alpha, 2010).

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This article was originally published in the May 2011 print edition of Entrepreneur with the headline: Pay It Better.

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