If you are one of those business owners that are hesitant to explore payroll outsourcing purely due to cost, consider that just because something is done internally, doesnt mean it is cost free. For instance, it may cost about $40 biweekly to outsource a payroll for 15 employees. This would include the processing and printing of paychecks, the automatic depositing and filing of employment taxes, and a set of management reports. At 26 payrolls per year, it would equate to $1040.
Compare this to the many hidden costs of internal payroll processing. Items of consideration include the time and labor required to make tax payments and file quarterly tax returns, printing checks, and making sure tax tables and compliance are kept up to date. This is on top of the obvious direct costs of payroll software, tax updates and check stock.
It can be estimated that a company with 15 employees will require at least 4 hours labor per pay period. At 100+ hours a year, what is that amount of time and money worth to you? Significant, when you consider time can be better spent building the business, growing revenue, or addressing other issues that require your particular skills or attention.
Another consideration is the necessity of keeping current with the ever-changing laws and regulations of the Internal Revenue Service and your state and local tax agencies. Not only can this be challenging, but a simple mistake, and your company could be assessed penalties or fines. According to the IRS, 40 percent of small businesses pay an average penalty of $845 per year for late or incorrect filings. This alone would justify the expense of outsourcing payroll since a payroll service would provide a guarantee of ensuring that there would not be any penalties and taking responsibility for penalties when they do occur.
Outsourcing payroll also gives the small business owner options that are not otherwise available. Payroll companies now have a wide range of outsourcing options not available to the in-house processor, including employee direct deposit and workers compensation “Pay As You Go”. There are also numerous reporting abilities not typically found with internal payroll software programs. In many businesses, timely, accurate and specific payroll reports are key to labor cost control by alerting managers of problem areas.
When selecting a payroll provider there are a few keys in finding the right one. Look for a company that has payroll as its central function. Ask the provider about services they provide to other companies that are in a similar industry to yours. Get a clear picture of the price by asking for an approximate annual cost rather than being distracted by introductory offers. Most importantly, look for a company that can provide you with personal customer service. Larger payroll companies are not always the best.
Payroll is a vital function of any business. Outsourcing to experts is not only cost efficient, its a wise and sensible move for businesses of any size. No wonder payroll is one of the most outsourced services in todays business world.
