Payroll Processing Service Contracts: The Fine Print

Outsourcing payroll is a great way for most businesses to reduce how much is spent on handling payroll related operations. Although smaller businesses, those with less than 20 employees, tend to see the greatest savings when switching to a payroll services provider, businesses of all sizes incur savings. A well crafted contract is what distinguishes a good payroll provider with a great payroll provider. It can also make the difference between payroll outsourcing being a means of saving money or a hugely expensive mistake. Here is a list of what to look for in your payroll provider’s contract to ensure that your outsourced payroll experience is a positive one.

1. Services: Every payroll processing service that will be rendered should be clearly spelled out in the contract. This also includes things such as startup costs or set-up fees, details about tax filings, and annual service charges.

2. Procedure Details: Specifics regarding turnaround time for when you will be required to input or call in employee information should also be detailed in the contract. With this, there should be information about the consequences and penalty fees if your company fails to submit the information on time.

3. Errors: Some service providers will include a clause in their contract that specifies that the provider will pay for any late or penalty fees associated with errors committed on their part. These errors generally include late filings and computation errors. This clause is very important and should be noted. If your provider does not explicitly delineate these terms, your company will be responsible for paying the penalties. This is a critical part of any payroll services contract as late filings and mathematical mistakes are expensive mistakes.

4. Hidden Charges: Hidden charges are difficult to account for because, after all, they are meant to be hidden. Here is a list of questions whose answers should be in your contract:

1. Who pays for postage when checks are mailed to the office?
2. If your company expands, are there additional fees?
3. If your company has an influx in workers due to seasonal employees, is there an additional fee?
4. Are software updates included in your annual fee?
5. If you sign a longer contract, can you lock in the annual fee?
6. Are fraud prevention technology fees included with the annual fee? 

A well drafted contract which clearly delineates all aspects of the agreement ensures that both parties are mutually satisfied. If you have any questions about specifics in the contract, or believe there are things missing from the contract, talk with the vendor. If anything bad were to happen, this contract is your lifeline, make sure it accurately represents what you believe to be the terms of agreement.