There are more than 1.5 million employers using payroll service providers today, representing one-third of private sector employers, according to the National Payroll Reporting Consortium, a trade association of the largest payroll service providers in the United States. And as more employers turn to third parties to administer their payroll, experts say the market continues to grow at a 5 percent rate annually, according the consortium. "As there continue to be new laws and regulations, many employers are throwing up their hands and saying that they can't keep up anymore," says Scott Mezistrano, senior manager of government relations for the American Payroll Association. With more demand comes more competition. According to the Internal Revenue Service, there are 5,000 payroll service providers in the U.S.—another number that is constantly growing. But there are challenges to being a payroll service provider. Over the past few years there has been some controversy over findings that a few payroll service providers withheld employees' taxes but didn't deposit the funds with the IRS. Even though these cases were rare, a number of bills were introduced in Congress to require payroll service providers to take out a bond or insurance on the amount of the taxes. In choosing a payroll provider, employers need to make sure—among other things—that their service providers have processes in place to keep pace with changing regulations. "Payroll is a constantly changing discipline and providers need to stay on top of all changes with regard to taxes, labor law, child support, immigration, unemployment and insurance," Mezistrano says.
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