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Payroll Management: When and How to Outsource

Skuad Desk

Nov 26, 2020

Introduction

Payroll management is a crucial aspect of business functions. It is also so elaborate that it involves a lot more than calculating the salaries of staff. As a result of this, it is usually a daunting task, especially for small companies with many other duties to handle.

While some organizations prefer to manage their payroll manually (i.e., In-house) via conventional bookkeeping and Excel Spreadsheets, many other business owners have discovered that giving this particular task to a professional body will save time and money.

For small companies, particularly, having a payroll specialist is great for the business. But, often, they lack the necessary resources, time, and funds to have a payroll specialist on board to manage it manually. However, now small businesses can choose a firm to handle their payroll.

Therefore, no matter your organization size, it is best practice to know when and how to outsource payroll.

Pros of Outsourcing payroll

Time-saving: Time is a resource that is invaluable for all business owners and their businesses. Twenty-four hours is usually not enough to get everything fixed in the running of a business. If there is ever a chance to outsource a task that can save time for other crucial and time-bound tasks, then why not go for it?

The hard truth is, no matter how many employees are in an organization, payroll demands time and absolute attention to the details. Payroll invariably demands that you pay and keep track of payments made and remunerations, recruit payment and benefits, and federal, state, and local government regulation charges. All these things are not just time-consuming but stressful in themselves. For small businesses with staff, the workload can be very exhausting.

For these reasons, outsourcing payroll activities seems to be the best option. It saves time, reduces workload, ensures no irregularities, and eradicates the errors that may occur due to having multiple functions to handle.

Money-saving: Most people are not aware of how manually processing your payroll is more expensive than outsourcing it to a payroll service. If you do the math, you will see that the cost of calculating payroll at every instance, the distribution of payslip, maintaining the payroll software, and the cost of upgrade far exceeds the cost of outsourcing to a payroll provider. Also, when you consider that whoever is handling your payroll will not ask for a regular staff’s benefits, it makes total sense that the organization will make no other spending as long as an external payroll provider handles it. In perspective, outsourcing payroll management reduces the cost of running the business.

Perfect for preparing payroll taxes and returns to government agencies: There have been instances where a wrong filing of tax remittance costs the business to receive fines from the authorities. There is nothing like handling tax documents by a professional. Mistakes are bound to happen if done by someone who is not skilled or has too many other tasks to handle.

According to Paychex (a payroll service firm), about 54% of business owners who manually carry out their payroll agree that accurate tax filing and payment is an important reason for outsourcing payroll to a payroll service provider. Because tax filing may be a quarterly exercise, it becomes crucial to outsource the payroll duties to a skilled and professional person or body.

Avoidance of payroll mistakes: According to the Internal Revenue Service in the United States, it quoted in 2016 that about 1.8 million tax returns were audited for businesses. They discovered that the IRS handed about 978,564 of those businesses civil penalties. The IRS gave these civil penalties based on errors made in filing tax returns. Even if we assume that the company discovered the mistakes before the organization filed the tax returns, the countless hours of working and reprocessing employee paychecks can be exhausting.

Having a professional handle this task is of great importance. Civil penalties usually result in fines that the company could have avoided if the company outsourced the duty of payroll processing to competent personnel.

Cons of outsourcing payroll

Not all packages offered by Payroll companies are needed: Some payroll companies that handle payroll duties include some features in their package and expect businesses to subscribe to it. These features increase payroll outsourcing costs and may not be beneficial for the company in the long run.

Not all payroll companies are great: Everyone is prone to making mistakes. Companies that handle payrolls also make mistakes. Simple human error can occur when a particular payroll company does not fully understand the operational nitty-gritty of staff payment in an organization. Undoing errors can be costly and thereby negate any advantage of outsourcing the payroll duties might have had.

Business owners are still responsible for all consequences: If a business owner decides to manage his payroll duties, any defaulting or wrong filing of tax will affect the owner and his business. Correspondingly, suppose the payroll activities are outsourced, the consequences will still affect the owner and his firm if anything goes wrong. However, the government is obligated to prosecute the payroll company if any issue arises, but it still does not mean that the business will not be affected.

Therefore, after going through the pros and cons of outsourcing payroll, the bulk of the decision lies in the business owner’s hands. After going through the pros and cons, if a company decides to outsource payroll, the perfect time should be immediate.

Now let’s take a look at how to outsource payroll.

How to outsource payroll

Because Payroll management is critical, organizations should take careful steps before outsourcing it to third-party management. Apart from that, the company should clearly outline its objectives and goals before opting for a particular choice. This section of the article is aimed at guiding you on how to outsource your payroll.

Be clear about what you want

Having a clear direction on how your business should be run is essential for its success. Before taking the grand step of outsourcing your payroll, you should be clear on what you want to achieve and what you want the payroll provider to do. If they end up doing more, that’s a plus, but it should never be less than what you want to achieve by outsourcing the payroll. Once the objectives are clear, the next step is to be deliberate on obtaining the correct information on the Payroll companies and providers available.

Research the different Payroll companies available

There is nothing like too much information. In this case, it is expedient that you are armed with enough information about the payroll provider and how their services align with your payroll objectives.

Your business’s size should also influence the choice of payroll provider you opt for because there are different payroll service providers. They have their systems tailored out to fit other clients. There are payroll providers that will suit small businesses and the ones that are geared towards managing the big enterprise businesses.

Whatever scale of business you run, you have a payroll provider that will be perfect for your company’s payroll objectives.

Reach out to a Payroll provider of your choice

After doing extensive research on the different payroll providers, you should make a connection with the one you eventually settle with. Your payroll is an integral part of your business, and it should be handled with care.

Make inquiries, ask questions to find out if their plans align with your objectives. Another thing is to check for their client base reviews; if you decide to do business with them regularly, it’s best to be sure that they are the best partner for your firm. The comfort in knowing your company’s payroll is being managed by a trustworthy, reliable, and efficient payroll service provider is priceless.

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