You already have the workers. Maybe they are a seasonal crew that returns every October, a group of experienced operators from a facility that closed nearby, or referrals from your best shift leads. What you need is not recruiting. What you need is someone to employ them.
Putting 60 people on your company’s payroll for 14 weeks creates headcount, benefits exposure, and unemployment liability you may not want to carry for a temporary group. Payrolling solves that problem. You source the workers. A staffing firm hires them as its own W-2 employees and assigns them to your site. You pay a rate per hour worked. The staffing firm runs payroll, remits taxes, carries workers’ compensation, and handles unemployment claims.
What Payrolling Is, and What It Is Not
Payrolling and payroll processing sound similar, but they serve different purposes and change the employment relationship in different ways.
Payroll processing is the software and tax filing system you use for your own employees. A payroll processing provider files your taxes, runs direct deposit, and generates your W-2s, but you remain the employer.
In a payrolling arrangement, a staffing firm serves as the employer of record for workers you have already identified. Those workers do not appear on your headcount. Their unemployment claims, workers’ compensation, and employment tax obligations sit with the staffing firm. You direct the daily work at your facility while the firm handles the administrative and compliance side of employment.
Who Is the Employer, and Who Is Liable
The answer depends on which arrangement you use. When you outsource payroll processing, you stay the employer and keep the liability. When you use payrolling, the staffing firm becomes the employer of record and the liability moves with it. The IRS draws a clear line between the two.
What the IRS Says About Payroll Service Providers
The IRS states that employers “are ultimately responsible for the payment of income tax withheld and both the employer and employee portions of social security and Medicare taxes.” If a payroll service provider fails to make deposits, “the employer remains responsible for the deposit of the federal tax liabilities and timely filing of returns,” according to IRS guidance on outsourcing payroll and third-party payers.
The IRS failure-to-deposit penalties are based on how late the payment arrives.
- 2% of the unpaid deposit for payments 1 to 5 days late
- 5% for payments 6 to 15 days late
- 10% for payments more than 15 days late
- 15% if the deposit remains unpaid 10 days after the IRS issues a notice
Those penalties apply to the employer whose workers are on the payroll. That is the point.
What Changes in a Payrolling Arrangement
In a payrolling arrangement, the staffing firm is the employer of record. It runs payroll, remits employment taxes, carries workers’ compensation, and handles unemployment claims for the workers it employs. The deposit obligation and the penalties above sit with the staffing firm rather than with you.
This does not remove every obligation from the client. Co-employment responsibilities still apply to workplace safety, daily supervision, and site conditions. Any employer considering payrolling should review the arrangement with tax counsel to confirm where its own obligations begin and end.
Payrolling, Temporary Staffing, and PEO Compared
All three involve a third party in the employment relationship, but they answer different questions.
- Temporary staffing is the right model when you need workers and do not have them. The staffing firm recruits, screens, and places the workers, serves as the employer of record, and charges a bill rate that covers wages, employment costs, and the recruiting work. A distribution center that needs 120 general laborers for peak season and has no pipeline is describing a temporary staffing engagement.
- Payrolling is the right model when you already have the workers and need someone else to employ them. The staffing firm still serves as the employer of record and handles the same employment administration, but no recruiting takes place. Because recruiting is the most labor-intensive part of a staffing engagement, the cost structure reflects that difference.
When Payrolling Fits
The qualifying condition is straightforward. You have already identified the workers, and you need someone else to employ them for a defined period.
Common situations include seasonal crews that return each year and do not need to be recruited again, rehires and referrals your supervisors already trust, a group you want off your headcount for benefits eligibility and unemployment reserve purposes, and a facility opening in a state where your entity is not yet registered.
Group size affects whether payrolling is worth the arrangement. A plant bringing on 15 seasonal workers may absorb that administration internally. A plant bringing on 60 to 80 workers for a 14-week production run faces a different calculation, especially when it runs that cycle at multiple sites across several states.
When Payrolling Is the Wrong Tool
If the workers are permanent employees you plan to keep year-round, payrolling is not the right structure. Your own payroll system, a PEO, or a long-term staffing arrangement is a better fit depending on your headcount and benefits strategy.
If you are a small business looking for software to run direct deposit and file quarterly taxes for your own staff, you need a payroll processing provider, not a staffing firm.
If you have not yet found the workers, that is a recruiting problem. Temporary staffing or temp-to-hire staffing covers recruiting, screening, and placement. Payrolling begins after the workers are already identified.
What to Have Ready Before You Contact a Staffing Firm
If you have a sourced group of workers and a defined period of employment, a staffing firm can scope a payrolling arrangement from four inputs: the number of workers, the expected duration, the states or locations involved, and whether any of the workers need to be converted to your payroll at the end. If you are looking for software to run payroll for your own employees, a payroll processing provider is the right solution for your situation.
Luxor Staffing is a light industrial staffing firm with 28 company-run offices in eight states. Luxor works with high-volume light industrial employers to scope payrolling arrangements based on group size, duration, and number of locations. To discuss whether payrolling fits your operation, complete the form on the Luxor Staffing contact page.
