Accuchex Blog

Outsourcing Your Payroll – What Are the Real Reasons? Part 1

Posted by Tristan Ruhland on May 16, 2014 8:51:00 AM

Many business owners make the mistake of assuming their payroll is better handled in house. They want control of their data, informational protection and financial savings. Occasionally in house payroll processing is the right fit, but the vast majority of businesses will quickly find the decision to manage their own payroll to be all consuming and costly in more ways than they imagined. Outsourcing your payroll is a much better solution for many businesses.

Payroll requires a depth of knowledge few business owners have time to acquire. There are the ever-changing intricacies of tax and wage laws. Federal, state or local agency reporting requirements that must be followed increases the number of items which a business owner must handle. The slightest error will trigger penalties and interest that compound and quickly burn through any cost savings that you may realize by bringing the payroll in house.

What to consider when analyzing your payroll processing method.

-  Up to date knowledge and the required continuing education – Training staff to handle payroll and the associated duties is costly. The risk in training a staff member to handle your payroll processing leaves an information gap if they ever depart your organization. Payroll providers are professionals that handle things for you so you can focus on your business.

-  Time commitment – Processing payroll internally requires both hours and resources that can better serve you in other functions within your business. Time is valuable; use it effectively. 

-  Guarantee that comes with an outside payroll service – A competent payroll company provides a guarantee that things will be handled correctly. The guarantee means that you don’t pay costly penalties from the IRS and the numerous other state and local agencies involved with your payroll.

Is it right for you? 

Each business is different and will need to consider their specific needs to determine if outsourcing will benefit their organization. In-house payroll processing can fit for two types of organizations, large companies with thousands of employees or a company with predictable straightforward payroll with no variations. For companies who fit these categories, outsourcing may still be the best option. When making the outsourcing decision you’ll need to consider items like,

  • Employee turnover
  • Overtime calculations, including blended rates for multiple rates of pay
  • Variation in hours worked
  • How many agencies you must handle reporting for
  • Do you have employees working in multiple states
  • Time required updating your knowledge of the complex changing payroll and tax regulations
  • Payroll data security 

Return on investment

The right payroll service will tailor their service offering to fit your specific needs. No two businesses are the same and no one size fits all payroll solution is adequate. The basic functions include,

  • Payroll Processing – The most basic of payroll functions - Online reporting of your payroll is the most common. A good payroll service will offer you the flexibility to report on your own terms. Additional reporting methods include phone calls, fax, email, time clock upload and other variations of these services.
  • Payroll Tax Preparation – Calculating correctly and paying on time is the largest risk a business faces when doing their own payroll. IRS penalties add up quickly and don’t ever resolve themselves. It often takes hours to reverse a simple mistake.
  • Funds Transfer – Transferring of tax and direct deposit money needs to be done on time every time. Payroll services are experts in the ACH (Automated Clearing House) rules and regulations. 
  • Quarterly and Annual Filing – A good payroll company will consider this a basic component of the tax services.
  • W-2’s - The Employee W2’s must be distributed by deadlines if you want to avoid the dreaded, “where is it” questions. 
  • Time and Attendance – Proper time keeping can assure you’re paying people for what they earn. It will also reduce the risk of liability in the case of the employment lawsuit. A good Time and Attendance system will also reduce the payroll-reporting burden. You will send data directly from the time clock to the payroll system to eliminate data entry.
  • HR – Human Resource tracking and questions will be daunting and with proper HR support it doesn’t have to be. HR support can range anywhere from HR data tracking to phone support to Open Enrollment and Applicant Tracking systems. As your needs change a good payroll service can scale with you. 
  • Insurance Services – Insurance built into payroll is a newer concept designed to help to reduce reporting burdens. Workers Comp along with employee benefits are the obvious connection but a good provider will be a full service agency that can take care of all of your needs.  Consolidating everything under one roof helps to reduce the burden normally placed on you when dealing with payroll, insurance and other management duties.

Stay tuned next week for part 2 that will explore things to consider when choosing a provider. For any questions or comments or to inquire about more details please contact Tristan Ruhland. 


Topics: Payroll

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