A payroll service provider performs many of the complex tasks required to process payroll accurately. The employers provide gross pay and withholding amounts for each employee to the payroll agency. It then uses current tax laws to calculate the correct tax withholdings and also withholds any benefit payments.
The employer assigns power of attorney to the payroll service provider to manage the payroll. The payroll service provider submits payroll tax payments to the IRS, state revenue departments, state labor departments, local tax jurisdictions and any other third parties. It also completes all payroll reports and creates IRS forms W-2 and 1099-MISC at year-end.