The Law Office of Cynthia T. Griffin, LLC

Does your business use an outside payroll service? Are you thinking of using one?

Payroll service companies perform an important function assisting employers comply with laws. But these services also pose risks for employers.

There are three categories of payroll service companies. In all three categories, the payroll service company computes employees' withholdings and net pay, compiles payroll accounting records for the employer, and prepares payroll tax returns for the employer.

The first category of payroll service companies are payroll service providers ("PSPs"). A PSP prepares payroll tax returns using the employer's employer identification number ("EIN"). The employer signs and files the tax returns.

The second category of payroll service companies are reporting agents ("RAs"). An RA prepares payroll tax returns using the employer's EIN, signs them for the employer, and files them.

The third category of payroll service companies are Section 3504 agents, also called professional employer organizations ("PEOs"). A PEO purports to take over as employer for designated employees. A PEO prepares payroll tax returns using its EIN, and signs and files the returns.