A payroll program is a system designed to collect payroll taxes, retirement contributions, union dues, child support payments, pension plan contributions, and other types of withholdings from a business' employees' payroll checks. When an employer fails to use an effective payroll program and does not comply with all legally required withholding rules they suffer strict consequences.
Payroll programs function by withholding taxes and other contractual obligations from an employees' gross pay. The amount of withholdings held is based on the amount of earnings an employee earns, as well as the amount of exemptions they claim; the number of exemptions claimed is determined based on a W4 form the employee fills out when being hired on by a company. Each withholding that is held from an employee's payroll check remains under the liability of the employer until they turn the money over to the entity it is owed to.
Taxes withheld from an employee's payroll check is regulated by the IRS, and other contractual obligations withheld from an employee's payroll check is regulated by the agency or the money is submitted to. Failure to comply with any regulated tax rules or contractual agreements leads to severe legal ramifications. Many times additional fees and interest are added to any amounts that have not been withheld in a proper manner or proper time period.
Many employees find that by adjusting the amount of taxes withheld from their payroll check they can benefit financially. Employers benefit from a payroll program because they can effectively and efficiently withhold and record all required taxes and contractual obligations from their employees' payroll checks, which aids in payroll processing and provides good audit prevention.
Time is a very important factor that is implemented into effective payroll programs. All amounts withheld from employees' payroll checks are done so on either a daily, weekly, bi-weekly or monthly basis. Any amounts that are withheld are held by the employer until they are handed over to the correct agency; this means an employer is completely and entirely responsible for the money until it is handed over. When the money is not handed over at the appropriate time, this is when the employer faces penalties.