Tax Strategies & Credits

Tips for Nonprofit Employers Outsourcing Payroll Duties

Tips for Nonprofit Employers Outsourcing Payroll Duties

Many nonprofit employers lack the resources to handle all of their payroll responsibilities in-house. In such cases, the employer may decide to outsource payroll duties to a third party. While outsourcing can be beneficial in many cases, it can also pose risks if the employer isn't careful. Many payroll service providers are reputable, but some are not looking out for their clients. In fact, many of these less reputable companies have been prosecuted for theft and other related crimes.

In order to minimize risks and protect your company, follow these tips when outsourcing payroll duties.

1. Know your due dates.

Even if you are entrusting all of your payroll responsibilities to another provider, it is still wise to become familiar with your payroll tax due dates. Mark these important dates on your calendar so that you can be sure your bills are being paid.

2. Understand your responsibilities.

Even if you outsource your payroll duties, you are still legally responsible for paying your payroll taxes, including Medicare, Social Security and withheld federal income taxes. If the money designated for these payments is stolen by a third-party provider, you will remain responsible for the bill. For this reason, choosing the right provider and being vigilant for signs of fraud are essential.

3. Determining Compensation.

It is not appropriate to pay Nonprofit employees a commission. The IRS requires that organizations provide “reasonable compensation.” There are many factors that go into what is “reasonable” as defined by the IRS. They include geography, the mission of the organization, hourly job requirements, duties, expertise, competitive analysis and many more. Be careful in determining the compensation of employees so that you do not run into any conflicts of interest. Compensation for executives and highly compensated employees will be listed on Form 990.

4. Enroll in the Electronic Federal Tax Payment System (EFTPS).

The EFTPS provides you with instant online access to information about your payroll tax payments. Enroll your business in the EFTPS and make sure that your provider is using this system to make all of your tax deposits. Log into this system on a regular basis to view your payment history and make sure that your provider is making all of the required payments in full and on time. If you notice any problems, contact your payroll services provider immediately.

5. Contact the IRS immediately if you receive a bill.

If you receive a bill or notice from the IRS, contact them immediately to learn more about the issue. If your payroll services provider failed to make a required payment, investigate the situation thoroughly to prevent further problems.

6. Understand reporting agent rules.

Reporting agents are subject to unique rules. If you use a reporting agent to handle your payroll needs, the agent will be required to file all payroll tax returns electronically and make all payments through EFTPS. Reporting agents must also provide you with a statement that explains your responsibilities for timely tax filings and payments once each quarter.

7. If you are part of a ministry different rules apply.

Payroll for clergy, or “Religious Workers” as defined by the IRS, are different from our other employees. This includes different rules for social security. Due to the complexity, clergy and ministry payroll requires working with someone familiar with the IRS regulations.

Working with a payroll provider who is ethical and has a strong track record takes much of the stress out of the process. Look for a provider with five-star reviews and is familiar with managing non-profit organizations payroll. This is especially true for church and ministry payroll and tax preparation.

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Bret Willoughby

Bret Willoughby

Bret Willoughby is a practicing tax preparer for expats throughout the world. He created Providence Payroll to meet the needs of Churches, not-for-profit organizations and businesses with remote workers. His web-based payroll processing service benefits both employers and remote workers with an easy way to access payroll information. Clergy have unique payroll and tax-related issues, one that Providence Payroll is qualified to manage.

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