Can I outsource my payroll?
Yes, but be careful to choose carefully when selecting a payroll service provider

Many employers outsource their payroll and related tax duties to third parties. This streamlines business operations by collecting and timely depositing payroll taxes on the employer's behalf and filing required payroll tax returns with state and federal authorities.

Though most of these businesses provide quality service, there are, unfortunately, some who do not have their clients' best interests at heart. Each year, a few of these third parties fail to remit the payroll taxes entrusted to them and close their doors abruptly. The damage hits their unsuspecting clients hard.

Warning: Like employers who handle their own payroll duties, employers who outsource this function are in most instances still legally responsible for any and all payroll taxes due. This includes any federal income taxes withheld as well as both the employer and employee shares of Social Security and Medicare taxes. This is true even if the employer forwards tax amounts to the third party to make the required deposits or payments.

One third-party arrangement that can reduce this risk is the certified professional employer organization (CPEO). Unlike other third parties, in most circumstances, the CPEO is solely liable for paying the customer's employment taxes, filing returns and making deposits and payments for the taxes reported with regard to wages and other compensation it pays to its employees. More information on CPEOs can be found on IRS.gov.

Other third parties, such as payroll service providers (PSPs) and reporting agents (RAs) may also be right for many employers. A reporting agent is a PSP that has informed IRS of its relationship with its client . A reporting agent is required to deposit its client's taxes via the Electronic Federal Tax Payment System and is authorized to exchange information with IRS on behalf of its client, such as to resolve an issue.