Each pay period, employee payroll data has to be "called in" to the payroll service provider. While this used to be done via a phone call or fax, almost all employee payroll information is now transferred electronically.

The standard method is by modem. The provider will supply you with software for tracking each employee's pay rate, deductions, and vacation time. Once you enter the information for the pay period, the software dials in to the provider's server and transmits the information.

Many companies use a dedicated computer that is not connected to the company network for employee payroll, which substantially increases the security of your sensitive data. Because the computer is not on a network, the direct connection to the provider is not susceptible to hackers, Internet bugs, or internal snoops.

Some providers also offer Web-based employee payroll data entry. You enter employee information on a secure Web page, which feeds directly to the provider. This method is gaining acceptance, but is still less popular than modem-based communication.

Your tax filing can be handled electronically as well. With the Electronic Federal Tax Payment System (EFTPS), your company transfers funds electronically to pay taxes due, rather than relying on checks. You are required to pay taxes via EFTPS within two years after your company has paid more than $200,000 in federal taxes. If for example, your company pays over $200,000 in taxes in 2008, then by January 2010, you must pay taxes electronically.

EFTPS is free to use and available to any business. Many employee payroll services offer electronic tax payments as part of their standard package as well. For more information, call EFTPS Customer Service Unit at (800) 945-8400 or (800) 555-4477.