Tips for Outsourcing Your Payroll

Tips for Outsourcing Your Payroll

When payroll is handled in-house, you need the appropriate software to support the job, an employee who has hours to dedicate to the process each week, and a keen understanding of tax laws and employer obligations. It’s likely that this was manageable enough when you were just starting out, but as your business grows and you add new employees, more benefits, and open up shop in other locations, managing payroll can become unwieldy. Here are some questions to consider that can help guide your discussion with a payroll company: Question: How many clients do you have? Question: What services do you provide? Why to ask it: Not all payroll is the same. Why to ask it: Payroll errors can be costly. Question: What software do you use? Why to ask it: As the business owner, you’ll need to be providing your payroll provider with a lot of sensitive information on a regular basis. Additionally, is there a way for your employees to access their pay stubs, tax documents, and benefits information online? Signing on the Dotted Line Once you’ve identified a company you like, it’s time for you to sign a contract and begin outsourcing payroll.

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outsourcing payroll

For small business owners, managing payroll can be a costly endeavor. When payroll is handled in-house, you need the appropriate software to support the job, an employee who has hours to dedicate to the process each week, and a keen understanding of tax laws and employer obligations.

It’s likely that this was manageable enough when you were just starting out, but as your business grows and you add new employees, more benefits, and open up shop in other locations, managing payroll can become unwieldy.

If you’re beginning to feel out of your depth with internal payroll management, it may be time to consider outsourcing the process. And while the idea of handing over such an important task (not to mention all that sensitive information!) to a third party may be nerve-wracking, there are some tips to help ease the transition.

Is Outsourcing Right For You?

Before diving in, run a cost/benefit analysis. According to a 2017 survey from Paychex, payroll is the most time-consuming activity each week for HR professionals, taking up an average of 11 hours. Multiply that out over 52 weeks, and—assuming a 40 hour work week—that comes out to just over 14 weeks per year spent on payroll alone!

Aside from the pure amount of time and money put into payroll each week, there are less tangible costs as well. The employee handling payroll must stay up-to-date on the ever-changing tax codes, and any errors in remittance of tax payments can result in costly fines and fees.

You’ll want to consider this against the costs of an external provider. Typically, payroll companies will charge a monthly base fee, plus an additional fee per employee or per check run. If you’re looking for extra services like direct deposit, state and federal tax filings, and W2 and 1099 processing, these will incur additional costs.

I Want to Outsource! What Next?

If you’ve decided that outsourcing makes sense for you, it’s time to start looking for providers. After you’ve identified some prospects, set up calls or meetings to discuss what services they offer. Here are some questions to consider that can help guide your discussion with a payroll company:

Question: How many clients do you have?

Why to ask it: You want someone reliable and experienced…

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