What is a Payroll Preparation Service?

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  • Written By: N. Madison
  • Edited By: Jenn Walker
  • Last Modified Date: 27 November 2019
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A payroll preparation service is a company that helps other businesses manage their payroll. This may include such tasks as calculating payroll taxes and deductions; withholding the appropriate amounts from paychecks; printing checks; and creating and managing payroll records. This type of service may also handle tax filings for its clients and manage such things as retirement and employee benefit plans. In many cases, a payroll preparation service may handle not only records and tasks related to payroll for a company's employees, but also tasks related to payments for independent contractors a company hires.

A company may hire a payroll preparation service for many reasons. First, managing payroll can be a time-consuming process, and a company may prefer to leave these tasks to a payroll preparation service and free up time to take care of other necessities. A company may also hire a payroll service to avoid having to deal with the complexities of handling deductions and payroll tax requirements. Likewise, a business may feel more comfortable leaving such things in the hands of professionals who are experienced with managing payroll and may be less likely to make mistakes. Additionally, a company may use a payroll service to ensure that paychecks and important documents are sent on time.


When a company hires a payroll preparation service, it typically pays the payroll company to take care of the basics of paying its employees. For example, a company may provide a payroll preparation service with data about its employees, including their pay rates, salary amounts, hours worked, and deductions. The company may also transfer funds to pay its employees to the payroll service. Once the payroll preparation service has the necessary data and the payroll funds, it may print checks for the company's employees. If the company also offers direct deposit, the payroll service may facilitate the deposit of payroll funds into the appropriate employee accounts.

In some cases, a company may need a payroll preparation service to do more than handle the payment of its employees. It may, for example, use a payroll service to manage and administer employee benefits as well as to keep track of employee vacation, leave, and sick time. Often, a payroll service will even handle a company's tax payments and work to ensure that the company is in compliance with applicable laws. The payroll service typically maintains records of the tasks it performs for its client companies and provides them with reports they can keep for their own records as well.



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