Does it Make Sense to Outsource Your Payroll?
Ensuring your employees are paid on time and for the right amounts, while also complying with the myriad regulations that govern wages and employment taxes, is critical to any business. It’s also often time-consuming and complicated — and requires specific expertise — particularly around taxes. Along with the many regulations that govern paying employees, you need to safeguard all employees’ confidential information.
To make sure all the bases are covered, you might want to hire a payroll service provider to capably take on these responsibilities. Here’s a look at what to consider.
What does outside expertise bring to the table?
While it’s true that handling payroll internally often makes sense when a business has just a handful of employees in one location, once an organization grows larger or has employees scattered across state or country borders, it may be time to consider engaging an expert to handle this function.
Payroll service providers often bring several attributes that many companies find difficult to replicate internally, such as knowledge of payroll regulations. They also typically have the ability to handle related functions, like managing workers’ compensation claims. Most are adept at managing the software and other technology typically used to handle payroll. And some offer additional services, like employee benefits management.
What should you look for?
When considering whether to work with a payroll services provider, you’ll want to evaluate a number of attributes, including:
- What payroll payment options, like direct deposit, are available,
- What other services the provider offers (such as handling unemployment claims or tracking paid time off),
- Whether the technology is up to date — if it seems lagging, that may mean the provider’s processes are manual and unlikely to offer the operational improvement you’re seeking,
- How helpful and informative the reporting options are,
- How easily navigable the user interface is (for example, does the provider offer a self-service online portal your employees can use to update their information?),
- How the provider safeguards sensitive employee information, and
- What support — whether phone, email or online chat — the provider offers.
To decide whether a particular payroll services provider is a good fit for your business, keep in mind the size and location(s) of your current workforce and how your employee base is likely to change over the next several years. You also might want to consider the number of states or countries for which you need payroll services, how complex the computer integration is likely to be, and whether the provider has experience with organizations of your general size and within your industry. Ideally, the provider you select will be able to manage your payroll function both today and as your organization grows.
In addition, you have the option to have the provider assume all payroll-related functions, or just a portion of them. For instance, you may ask it to manage payroll only for employees outside your home state or country.
What are the costs?
Of course, outsourcing payroll comes with a hard dollar cost. Often, this includes some mix of a fee for each payroll check, a monthly charge, and separate fees for quarter- and year-end tax-filing reports.
Moreover, even when you engage a payroll services provider, you, as the employer, are “ultimately responsible for the deposit and payment of federal tax liabilities,” according to the IRS. If the payroll service provider fails to make required federal tax payments, for instance, the IRS may assess penalties and interest on your business’s account. This is why the IRS “strongly recommends” businesses keep their own addresses as the addresses of record with the agency.
In the right hands
Outsourcing payroll often means access to experts, which reduces the likelihood of mistakes in the long run. Your accounting professional can help you determine if it makes sense for your business to outsource your payroll.
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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