Just because you can do something doesn’t mean you should. When you’re a small business owner, that saying applies 2X. Small-business owners are often micromanagers and can’t help trying to do everything themselves. This usually results in inefficiencies, even if the business owner doesn’t realize it. Payroll is one area where you can literally spend your entire day if you try to take it on. That’s why outsourcing payroll is a better way to go. In this article, we provide 7 reasons why you should outsource payroll.
If you or your staff are doing payroll in-house, you already know it takes a long time. Throwing more people at the problem usually doesn’t solve it. Anyone managing payroll needs the right knowledge and skillset. Processing payroll isn’t something your employees are going to pick up on the job. It requires extensive training.
Below are just a few of the many tasks involved with payroll processing:
- Distributing paychecks.
- Printing W-2s.
- Signing documents.
- Keeping track of benefits.
- Keeping track of paid time off.
- Staying current on changing tax laws and rules.
- Paying payroll taxes.
- Remitting returns to the right government agencies.
- Dealing with garnishments.
- Incorporating new hires and producing reports for them.
- Creating reports for all of the various departments that require them.
- Paying for payroll software subscriptions.
- Dealing with payroll software upgrades and maintenance.
The above just scratches the surface and don’t forget that it has to be done for every pay period. All of the necessary knowledge and experience to understand what to do when things go wrong are also needed. As well, you’ll need at least two employees who specialize in payroll if you really want to run it all in-house. Even then, there can still be problems. For example, what happens when one quits and one gets sick on the same day? What will you do? Everyone is waiting to be paid.
For small businesses, outsourcing payroll is much cheaper than trying to do it all in-house. Sure, once you become a much larger company, in-house payroll can make sense. Until then, outsourcing will reduce the time and cost spent on payroll.
How do you calculate if you really are saving money by outsourcing payroll? Add up the number of hours employees spend processing payroll and calculate the related cost. Compare that cost to the monthly fee of several payroll services. You’ll likely be surprised at how much more in-house payroll servicing costs.
Payroll is an extremely detailed process and it’s easy to get something wrong. Worse, if you submit an incorrect payroll, you’ll end up having to pay penalties. If you are curious about some of the most common payroll mistakes, The Workforce Institute found the following:
- Missing Punch - 45.6%
- Wrong time written/entered - 44.4%
- Missing time cards - 31.1%
- Wrong pay code applied - 22.7%
- Pay rate applied with errors - 15.7%
Ok, an uprising may be a bit of an exaggeration. But don’t make any mistake about it, paying employees late will cause problems. If you are constantly paying employees late, it’s likely that your business has a revolving door of employees, assuming it’s able to hire anyone.
This all goes back to mistakes when processing payroll in-house. Unless your employees are very experienced at running payroll, it can take a while to find errors, correct them, and resubmit. In the meantime, employees are the ones who suffer.
Tax laws change every year. Trying to keep up with them can be a full-time job. Payroll services use software that has the latest tax laws and rules integrated into it. These services also have people with the knowledge to help decipher tax laws and ensure your payroll is processed correctly the first time.
Good internal controls are a foundational part of any successful business. Consider accounts receivable as an example. A company that uses one person for A/R is setting itself up for fraud. One person is watching over all of A/R. If he/she wants to do something fraudulent, it’s basically the wolf watching the hen house.
When you outsource payroll, you reduce the potential for fraud. No one person has control over the entire payroll process.
Hopefully, we’ve convinced you by now that trying to do payroll in-house only results in pain. Payroll services are pros at what they do. They are reliable, affordable, and, best of all, you don’t have to deal with payroll. You can expect that with every pay period, like clockwork, your payroll will be processed without issue. Additionally, outsourcing payroll is now very common among businesses, even big ones.