Overview: Payroll management is an energy-consuming task. While some companies perform it in-house, others prefer choosing a third-party source to handle their payroll. Is outsourcing right for you? Read on to find out!
Running a business requires a lot of ongoing processes. Many companies reach a point where it makes sense to outsource some of those processes so employees and management can avoid being spread too thin. One example of a task that is often outsourced is payroll management.
Businesses may hire an external entity to handle all payroll functions to save themselves time and money. Outsourcing eliminates the need for business owners to search for highly-trained payroll staff to join their organization. It also spares them from needing to purchase and maintain relevant bookkeeping software. That said, whether payroll outsourcing is cost-effective depends on the complexity of organizations’ payroll requirements.
Related Reading: The best accounting software for small businesses
What is Payroll Outsourcing?
As the name suggests, payroll outsourcing is when an organization hires a third-party company to assist with the necessary legal, tax, and accounting services involved in ensuring that employees receive their paychecks on schedule. Getting everyone paid is obviously an essential component of running a business, and payroll outsourcing provides skilled assistance.
For some businesses, going through the rigmarole of payroll in-house isn’t worth the time and stress. Payroll outsourcing takes that stress off the shoulders of business owners, providing them with more time to focus on their marketing and other business strategies. If you’re one of those business people who finds running payroll onerous, consider hiring a company to take care of payroll for your employees.
Are you still questioning whether you should hire an outside company for payroll? Let’s take a look at some of the advantages of outsourcing payroll. We hope this will help you make the right decision for your company.
Outsourcing their payroll tasks enable companies to:
Leave the effort of calculating and distributing payroll according to the company policy (weekly, biweekly, monthly) to somebody else
Simplify regulatory compliance, including data protection requirements
Simplify the process of calculating benefits, including vacation time, commissions, incentives, severance payments, pre-retirements, and various other payment details that aren’t a part of an employee’s salary
Benefits of Outsourcing Your Payroll Services:
Payroll outsourcing costs vary by business size and geographic area. Depending on the number of employees you have, it may or may not be more expensive than payroll software. The one thing that all of the benefits have in common is that they’ll bring you peace of mind. Passing on your payroll duties to another company can lead to a smooth process and fewer payroll errors.
Professional Payroll Management:
Let’s face it: Payrolls are complicated. Even if you’re great at running a business, mastering the knowledge and skills required to oversee payroll can be overwhelming. Full-time employees, part-time employees, independent contractors… It’s a lot to keep track of! Leaving payroll in the hands of a professional will grant you the confidence that employees are getting paid accurately and on time.
Also, consider the fact that payroll taxes and laws are always subject to change. A professional payroll outsourcing company will always be up-to-date on the most current requirements and regulations. Along the way, these professionals will explain to you what steps they’re taking to execute your payroll needs, so you’ll be sure to understand what’s going on even without having to do the hands-on work yourself. That’s a win-win!
In addition to staying on top of the current payroll rules, a professional payroll service will keep up with all the necessary paperwork. They’ll dot all the i’s and cross all the t’s and deliver all the associated forms to you so you’ll have them all organized and in one place if the auditors even come calling.
Payroll Tax Expertise:
Another reason to opt for a payroll provider is that misfiling taxes can significantly cost your business. If you opt for doing your own payroll, you should keep in mind that a simple mistake in calculating payroll taxes could cost you big-time when the IRS takes notice.
That’s a nerve-wracking possibility. But the good news is that many payroll providers offer you a guarantee on their services. If your business incurs a fine because of a filing error or payment issue on their part, the payroll provider will pay those incurred penalties. However, it’s important to note that even if payroll providers assume all the responsibilities for paying penalties, you, as a business owner, will have to pay the subsequent interest charges.
A payroll provider can also produce valuable financial reports for your business. This may include payroll by departments, summaries of various earning statements, and other accomplishments. They also track Certified and OCIP payroll expenses and time sheets, as well as performing multiple other types of reporting, which is helpful to have as a business owner.
Related Reading: What is financial reporting?
When you work with a reputable payroll company, you can be assured that they know what they’re doing. With their exceptional skills and experience, the chances of making careless mistakes, such as missing a quarterly payroll tax filing, are less likely to happen. Payroll service businesses hire and train payroll specialists to ensure accurate, timely work in compliance with tax laws.
Business owners’ time is best spent keeping the company running smoothly and working to grow the business. With so many responsibilities to juggle, overseeing payroll is a time-consuming and frustrating process. If you’ve already established a payroll department staffed by capable personnel, you’re in a good situation — and you’re quite lucky!
But for those who can’t say the same, outsourcing payroll frees up valuable time for increasing productivity and focusing on revenue-generating activities. Payroll providers also supplement the work done by in-house human resource employees, allowing them to be more efficient by taking on some of their most time-consuming tasks.
Is Payroll Outsourcing Right for Your Company?
Are you still wondering whether you want to hand over your payroll tasks to an outside organization? Read on.
Companies of all industries, sizes, types and locations can benefit from a payroll outsourcing service. Payroll outsourcing is a great option, especially when your company:
Does not have an in-house finance or administration team
Operates internationally and needs payroll management experts in each region/country
Could benefit by allowing the internal finance or administration team to focus on strategic tasks outside of payroll
Requires continuity of payroll management and needs a robust data recovery system
Is concerned about compliance with future or current regulations
Before you make the decision, would you like to know how payroll outsourcing works? Here’s a brief rundown.
How Does Payroll Outsourcing Work?
Once a company decides to hire a payroll outsourcing service, the two organizations will agree on which processes the payroll company will perform and note any deadlines. Both parties will have access to an information transfer system. The process begins with the hiring company sharing essential information about their workforce with the third-party service provider. This will includes names, workers’ wages, timesheets, daily or hourly rates, vacations, sick day policies, and other data involved in calculating the payroll.
Because much of this information is quite sensitive, the payroll provider must commit to protecting the information and following a security and/or confidentiality agreement. A data protection system will help with this aspect.
Related reading: What is data protection, and why is it important?
Once the system is established and processes are addressed, the payroll provider will use the information to determine payroll needs and pay your employees regularly. They can also take care of compliance, taxes, and other reporting.
We hope this has given you plenty to think about regarding the possibility of outsourcing your payroll. Payroll outsourcing can be quite advantageous to companies with a compatible structure and workforce size. A professional payroll expert will provide services that might be difficult for you to do efficiently in-house, giving you peace of mind and minimizing your risk of non-compliance.
Are you interested in payroll outsourcing for your business? Contact our team of experts today to learn more about how we can help you!