What Is Included in a Managed Payroll Service, and What Counts as Extra?
A managed payroll service is an arrangement where an outside provider performs payroll work, such as calculating pay, depositing taxes, and filing returns. Per IRS guidance on outsourcing payroll duties, the employer stays accountable for those obligations even when someone else does the work. The contract sets the scope and what is priced as extra, so confirm both in writing.
This guide covers the duties a provider can perform, who stays accountable for each under IRS rules, and the scope items that need a written answer.
What payroll duties can a managed payroll provider perform?
Depending on the contract, a provider can perform your federal deposits and returns, Forms W-2 and W-3, Form 1099-NEC, new hire reporting, state unemployment tax, child support withholding, and Affordable Care Act (ACA) reporting. Federal and state agencies set the rules, and the table shows what each duty involves and who generally stays accountable when a managed payroll service or payroll service provider performs it.
Duty
What it involves
Who stays accountable
Federal tax deposits
Electronic payment through the Electronic Federal Tax Payment System (EFTPS), IRS Direct Pay, a Business Tax Account, or a payroll service on your behalf (IRS Pub 15)
The employer, which the IRS calls ultimately responsible
Form 941
Quarterly federal employment tax return, due the last day of the month after quarter end (10 more days if all deposits were timely). Q3 2026 is due November 2, 2026, or November 10, 2026 if all deposits were timely, and Q4 2026 is due February 1, 2027, or February 10, 2027 on the same condition (Form 941 instructions)
The employer, which remains liable for timely returns when the provider files under your EIN as a payroll service provider or reporting agent (IRS chart)
Form 940
Annual federal unemployment (FUTA) return, due February 1, 2027 (IRS due dates). The 2026 rate is 6.0% on the first $7,000 per employee, less a credit of up to 5.4% for timely state tax, or 0.6% effective if your state is not a credit reduction state (Pub 15, section 14)
The employer, since FUTA is paid only by the employer and is not withheld from employee pay (Pub 15)
Forms W-2 and W-3
W-2 reports an employee’s wages and withholding, and W-3 is the transmittal filed with the Social Security Administration. Filings and employee copies for 2026 are due February 1, 2027 (W-2 and W-3 instructions)
The employer, since using a provider does not relieve that responsibility
Form 1099-NEC
Reports payments to non-employee contractors. The threshold for 2026 payments is $2,000, up from $600, and the form is due February 1, 2027 (1099-NEC instructions)
The business that made the payments
New hire reporting
Report of each new or rehired employee to a designated state agency within 20 days of hire, or sooner in some states (Health and Human Services Office of Child Support Enforcement (HHS OCSE))
The employer, under federal law
State unemployment tax
Registration, rates, and filing are set by each state, and the Department of Labor directory lists the agencies
The employer, which pays the tax (Alaska, New Jersey, and Pennsylvania also require employee contributions)
State income tax withholding
Registration, deposits, and returns are set by each state revenue agency, so confirm each state where you have employees
The employer
Child support withholding
Honoring an Income Withholding for Support order ahead of other garnishments, except an earlier IRS tax levy, and sending payment within seven business days of paying wages, or sooner if a state sets a shorter time (HHS OCSE)
The employer, which faces penalties in every state for not complying
ACA reporting
Information reporting for applicable large employers, which have at least 50 full-time employees, including full-time equivalents, on average in the prior year (IRS)
The employer, when it qualifies
Figures and dates as of October 2026.
Who stays accountable when a provider handles payroll taxes?
The employer generally stays accountable. The IRS says “the employer is ultimately responsible for the deposit and payment of federal tax liabilities” and may assess penalties and interest on your account if a third party fails to pay (Outsourcing payroll duties). Pub 15 adds that a payroll service provider is not liable as an employer or an agent for your employment taxes. The Internal Revenue Manual also says employment tax liability “cannot be altered by a private agreement or contract” (IRM 5.1.24).
The failure-to-deposit penalty is 2% for one to five days late, 5% for six to 15 days, and 10% for more than 15 days. It rises to 15% if the deposit is still unpaid more than 10 days after the first IRS notice or on receiving a demand for immediate payment. The tiers replace rather than add, and the IRS may reduce penalties for reasonable cause (as of October 2026). The Trust Fund Recovery Penalty may be assessed against any responsible person who willfully fails to collect or pay trust fund taxes. The IRS says that can include responsible people at the business and at a provider.
The IRS also sorts provider types by whose employer identification number (EIN) files. A payroll service provider and a reporting agent use your EIN, while a section 3504 agent and a certified professional employer organization (CPEO) file aggregate returns under their own EIN. A section 3504 agent does not file your Form 940, which stays under your own EIN (IRS).
What changes in your payroll scope as you add employees or states?
The duties stay the same, but several rules change with headcount, state, and form.
* Check your deposit schedule, which is monthly if total taxes in the four-quarter lookback period were $50,000 or less and semiweekly if above that, and a tax liability of $100,000 or more on any day requires a deposit by the next business day (Pub 15, as of October 2026).
* E-file Forms W-2 once you file at least 10 information returns in total (W-2 and W-3 instructions).
* Test whether you are an applicable large employer, meaning at least 50 full-time employees, including full-time equivalents, on average in the prior year (IRS).
* Report new hires to the state where they work, since some states set deadlines shorter than 20 days (HHS OCSE).
* Confirm state unemployment tax registration and rates with each state agency, because both vary by state (Department of Labor directory). Pay state tax in full and on time to keep the FUTA credit (Pub 15).
What counts as extra in a managed payroll contract?
An item counts as extra when the contract prices it outside the base fee, as an add-on or a separate charge. The contract, not an industry standard, sets what a provider covers and what it bills as extra fees. Each question below needs a written answer that states what is covered, how you request it, and how it is priced.
1. Request the complete fee schedule, and ask whether off-cycle runs for corrections, bonuses, and final pay sit in the base fee or are priced per run.
2. Ask how garnishment and child support withholding orders are processed, and whether each order carries a fee.
3. Confirm whether Forms W-2 and W-3 preparation, filing, and delivery are in the base fee, and whether the provider can report the new 2026 Form W-2 items such as qualified overtime compensation (box 12, code TT) and, for tipped occupations, cash tips (code TP) (W-2 and W-3 instructions).
4. Ask separately about Form 1099-NEC for contractors, which is a different obligation from W-2s.
5. Get the terms for corrections and amended returns, including who prepares them and how they are priced.
6. Clarify how new hire reporting and multi-state payroll work, including state unemployment registration for each new state.
7. Check whether ACA reporting is covered if you are an applicable large employer.
8. Identify which HR administration is included, such as onboarding, employee records, and benefits deductions.
9. Trace how time and attendance data reaches payroll and which reports are standard.
10. Ask whether account support means a named contact or a shared queue.
11. Ask how the quote changes as headcount, states, or pay frequency change.
On item 11, AsureCentral and AsureWorks pricing is a custom quote based on employee count, setup (self-service, hybrid, or fully managed), the plan chosen, and the modules added, such as Asure HR Compliance, Asure Time & Attendance, Asure Recruiting, or 401(k) Plans.
How is managed payroll different from a PEO?
The IRS describes a professional employer organization (PEO) as handling various payroll administration and tax reporting responsibilities, typically paid a fee based on payroll costs (IRS CPEO program). In a PEO arrangement, the PEO asserts that it is the employer, or co-employer, of your employees and pays their wages under a service agreement (Treasury Regulation 31.3504-2). A managed payroll service does not involve co-employment.
AsureWorks is a managed service and a PEO alternative with no co-employment, run on AsureCentral with Asure specialists doing the work, so you remain the employer and keep your own benefits plans, broker, and retirement choices. With AsureWorks, you keep control of workforce decisions, including hiring and pay, and you stay responsible for deposits and returns.
What can you do on your side to stay in control of payroll taxes?
Set up your own IRS access and ask a few direct questions.
* Register for EFTPS, which the IRS recommends in its guidance on outsourcing payroll duties, or use an IRS Business Tax Account if your business is eligible, so you can see your own payment history.
* Keep your own address as the IRS address of record, which the IRS strongly suggests (W-2 and W-3 instructions).
* Ask whether the provider is a reporting agent authorized on Form 8655, and whether you receive the written statement that the employer is responsible for filing and paying on time (IRM 5.1.24).
* Ask who files under whose EIN.
* Know the escalation path, which starts with Form 14157 for suspected provider misconduct (IRS).
* Keep employment tax records for at least four years (Pub 15).
Take the scope checklist to every provider you are considering and get each answer in writing before you sign. To see how AsureCentral and AsureWorks work, visit Payroll and HR from Asure Software or talk to an Asure expert.
Frequently Asked Questions
Does hiring a managed payroll provider change who is liable for payroll taxes?
Generally no, because the employer remains responsible for its payroll tax duties even when a provider performs them (Pub 15).
Who files Form W-2 and Form 1099-NEC when a provider prepares them?
The employer remains responsible for furnishing and filing Form W-2, and the business that made the payments files Form 1099-NEC (1099-NEC instructions). The IRS says using a reporting agent or other third-party payer does not relieve an employer of that responsibility (W-2 and W-3 instructions).
How do you know if ACA reporting applies to your business?
It applies if you are an applicable large employer, meaning you had at least 50 full-time employees, including full-time equivalent employees, on average during the prior year. A full-time employee averages at least 30 hours a week or 130 hours a month, so the test is not a headcount of 50 people (IRS).
What does AsureWorks cover, and what stays with you?
With AsureWorks, Asure specialists run payroll, including payroll tax filing and reporting, and handle day-to-day HR administration such as employee records, new hires and changes, and benefits coordination. Statutory responsibility for deposits and returns stays with you, and the service terms and quote define the exact scope.
What should you do if a provider misses a tax deposit?
Check your own EFTPS or Business Tax Account records, then contact the IRS promptly about any bill or notice caused by the provider problem (Outsourcing payroll duties). The IRS says a provider’s first missed payment should raise a red flag (Outsourcing payroll duties). Suspected improper or fraudulent activity involving deposits or returns can be reported on Form 14157.
