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Payroll is a critical business function, but not one that brings value to shareholders or improves service to customers. You have the best understanding of your core business and should focus on its growth and success, and not having to worry about payroll tax due dates and the ever changing compliance laws. Outsourcing payroll processing can free up a substantial amount of human and capital resources – resources that could be better used for developing and implementing value-adding strategic initiatives.
Many business owners underestimate the cost of processing payroll internally. They fail to account for all of the man-hours spent by anyone in the organization that touches the payroll from the point of data collection and entry to the balancing and filing of the quarterly payroll tax returns. This is on top of the obvious costs of maintaining payroll software and purchasing annual tax updates. The largest cost of them all is the cost of mistakes. The IRS has reported that forty percent of small businesses that perform their own payroll duties are fined for inaccurate returns or late deposits, and the average fine is $845. There is also employee dissatisfaction that can result from inefficient payroll and benefits processing, which can certainly affect employee retention, thus becoming a competitive disadvantage.
There is also money that can be found by outsourcing payroll. In this past year, there have been many new tax credits available surrounding payroll, and if you are a small business doing payroll in house, you may not be aware of them. If you are not familiar with the HIRE Act and the Health Care Tax Credit, then you may be missing out. The HIRE Act makes an up to a $7,200 tax credit available to any business that hires the unemployed, and the Small Business Health Care Tax Credit which could net you a tax credit equal to 35% of the health insurance premiums you pay for your employees.
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 workers’ compensation “Pay As You Go” and Employee Self Service. 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 a personal solution. Keep in mind that larger payroll companies are not always the best as their focus is not necessarily service, but volume.
Payroll is a vital function of any business. Outsourcing to experts is not only cost efficient, it’s a wise and sensible move for businesses of any size. Once payroll functions have been outsourced to a reputable company, you can sit back and concentrate on your real business.
