Running a nonprofit means wearing many hats — one minute you’re fundraising to aid in your organization’s mission, the next you’re juggling business duties like human resources, accounting, taxes, and payroll. Because nonprofits usually don’t have a surplus of funds for outsourcing business services, they often try to tackle payroll and other bookkeeping duties on their own. But nonprofit payroll can be tricky due to various state laws, as well as tax regulations that may change from year to year. Read on to find out more about nonprofit payroll, and whether outsourcing can benefit your organization.

The Facts About Nonprofit Payroll

Taxes

While a nonprofit organization’s vision and goals may differ from that of a for-profit company, many of the business practices and processes are similar. Like a for-profit company, nonprofits are required to withhold state and federal taxes, Medicare, and Social Security from their workers’ payroll. Nonprofits must also match Medicare and Social Security, as well as pay federal and state unemployment insurance. In the state of California, nonprofits organized under the 501(c)(3) tax laws have the option of choosing whether to pay the same unemployment insurance rate as for-profit entities, or reimburse the state’s unemployment office for benefits paid to former employees. Some states also require nonprofits to pay disability taxes, and must follow their states’ workers’ compensation laws.

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Tax-Exempt Status

In order to be eligible for tax-exempt status under IRS Section 501(c)(3), your nonprofit must be considered a charitable organization — that’s how nonprofits are able to provide tax deductions to the people who donate to them. Charitable organizations are still required to pay state sales and use taxes, but do not pay taxes on profits. In order to be eligible for tax-exempt status, a nonprofit company’s net profits cannot benefit the private interests of the company, its employees, or its stakeholders. The nonprofit cannot be an “action organization,” meaning it may not attempt to influence legislation as a core activity, or participate in any campaign activity for or against political candidates. Different types of nonprofit organizations have specific criteria involved with determining tax-exempt status. Check out the IRS website for more information.

Focus On Your Mission, Not Your Books

Nonprofits require steadfast dedication to the mission of the organization. Adding nonprofit payroll management — with all the specific standards and laws that regulate it — to your list of duties, and you may find that you’re in over your head. Thankfully, outsourcing your nonprofit payroll can alleviate the headache of additional responsibility, save time and money, and reduce inefficiencies.
 

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In our experience, business are using payroll outsourcing services most often for these important reasons:

1. Free Up Your Time
Payroll processing by hand is a time-consuming process. Outsourcing payroll can free up staff time to pursue more important value-added and revenue-generating activities. Inc. magazine recently identified the #1 task for small business to outsource is payroll, along with most accounting tasks.

2. Reduce Costs
The direct costs of processing payroll can be greatly reduced by working with a payroll provider. Our research indicates that a small business with 10 employees will typically spend $2,600 per year in direct lab or costs associated with payroll.

3. Avoid IRS Penalties
According to the IRS, 40 percent of small businesses pay an average penalty of $845 per year for late or incorrect filings and payments. Most national payroll services provide a tax guarantee, ensuring that customers will incur no penalties because the providers take responsibility for penalties when they do occur. In many instances, this cost-saving immediately justifies outsourcing payroll.

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4. Alleviate Pain
Manual payroll is a headache in the best case and a nightmare in the worst case. Business owners who outsource payroll eliminate a tiresome source of personal pain.

5. Offer Direct Deposit
Providing direct deposit is difficult if a company doesn't use an outside payroll service. Increasingly, small businesses recognize that employees want direct deposit. Not having to make a trip to the bank is an important convenience for them. More importantly for business owners, direct deposit eliminates time-consuming and error-prone paper handling and the need to reconcile individual payroll checks every month.

6. Avoid Technology Headaches
A constant question for small business owners is whether they have the latest version of their payroll software and the most recent tax tables installed on their computer. Using the wrong tax tables can result in stiff penalties. Outsourcing payroll removes those headaches and keeps payroll running smoothly.

7. Leverage Outside Payroll Expertise
Most business owners and controllers don't have time to keep up with constantly changing regulations, withholding rates, and government forms. By outsourcing payroll, a small business can take advantage of expertise that was previously available only to big companies.
8. Avoid Payroll Knowledge Walking Out the Door
If your bookkeeper or controller gets a new job, they will walk out the door with their knowledge of the payroll process and how you do it. Using an outside service eliminates that business risk. 
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Payroll outsourcing is a business practice that involves contracting with a business service to handle all functions related to a company payroll. By outsourcing the service to another company makes it possible to manage the payroll process without requiring maintaining a large payroll department. Payroll service providers manage such diverse functions as the calculation of wages and salary, withholding of taxes, the distribution of withheld funds to the government agencies, and the direct deposit of net pay into the bank accounts of employees.

Few reasons why a company may choose to go with a payroll outsourcing option:-

a)      Payroll processing by hand is a time-consuming process. Outsourcing payroll can free up staff time to pursue more important value-added and revenue-generating activities.

b)      Direct costs of processing payroll can be greatly reduced by working with a payroll provider.

c)       Manual payroll is a headache in the best case and a nightmare in the worst case. Business owners who outsource payroll eliminate a tiresome source of personal pain.

d)      By outsourcing it is possible to restrict the payroll team to one or two individuals or may be no one required to handle it within the organization.

e)      No need for anyone to spend a majority of the workweek calculating hourly wages, taxes, and dealing with various types of withholding issues.

f)       A constant question for small business owners is whether they have the latest version of their payroll software and the most recent tax updates installed on their computer. Using the wrong tax updates can result in stiff penalties.

Payroll outsourcing also prevents an employer from having to deal with technology woes. Since the payroll is processed off-site, there is never a need to upgrade payroll software or spend time and money on program or hardware glitches or any of the system issues that can occur and slow down the payroll process. As a result, employees are consistently paid on time and remain happy.

While payroll outsourcing does mean incurring another business expense on a regular basis, even small businesses often find that using this type of service saves time and money each month. Most outsourcing vendors will offer several different payroll plans that are likely to be ideal for businesses of different sizes. In terms of convenience, keeping the payroll records up to date, and keeping the withholding accurate, going with a payroll outsourcing service just makes sense.

BBW Business Services offers this service. We offer tailor made solutions to fit your budget after understanding your requirement. For more details visit us at http://bbw-services.com