Paying employees means more than just issuing checks. Your company also needs to keep accurate records for current and past employees for a certain period of time. There are record requirements from both the IRS and the U.S.
Department of Labor, which enforces employment rules for several other federal agencies.
Without the proper records, your company will be unable to comply with regulatory requirements. If you are subsequently audited by federal, state or local agencies, you could be hit with back taxes, interest and penalties.
Burden of Proof
The burden of proof, or the responsibility to substantiate items on your tax returns, such as payroll and payroll-related costs, at one time rested entirely on the taxpayer. Since the passage of the Internal Revenue Service Restructuring and Reform Act of 1998, the burden has shifted to the IRS in the event of a courtroom proceeding, but only if you meet the requirements to retain proper records and make them available for inspection. So while the law now takes some of the heat off taxpayers, it only applies if your company diligently maintains records and cooperates with reasonable IRS requests.
Obviously, good records are vital but maintaining them is a daunting task. Many businesses solve this problem by outsourcing payroll. A payroll service provider can relieve your business of the many headaches involved in preparing paychecks and reporting to government agencies, and it can also store your documentation and provide you with reports as needed. Recordkeeping is just one more reason why outsourcing payroll makes sense for so many businesses.
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