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5 Reasons To Outsource Payroll Management

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It is difficult to run a business without a great payroll management system. Getting it wrong can cost you a lot of time, employees, and money.

Every small business must apply some common sense tips to succeed. They include using free marketing tools, networking wisely, and managing cash flow. On top of other critical things like hiring a good team of employees and writing a solid business plan.

One things that’s missing from this list is a solid payroll system. While you can choose to setup and maintain payroll yourself more and more businesses are outsourcing it to experts.

Keep reading to learn why.

Reasons to Outsource Payroll Management

A good payroll management system isn’t just about employee compensation. It affects employee morale, financial stability, and a company’s compliance with federal and state governmental agencies like the IRS and the Department of Labor.

Despite its level of importance, some business owners set out to handle everything themselves. Some do it to save money while others view it as a simple enough process to keep totally in house.  For others, it's in their nature as owners to want to control every facet of their business operations.

Time and again we hear from business owners that have went the DIY route and often it woulod have been much better in the long run if they had just outsourced payroll management to qualified payroll provider.

Here are five reasons why:

  1. To Avoid Payroll Mistakes

Last year, the IRS assessed 5.9 million civil penalties due to payroll mistakes. Ultimately small business owners ended up owing over 6 billion dollars in penalties for 2016. 

These numbers show us two things, how common payroll errors are and how much they are costing business owners.  

As a small business owner you shouldn’t expose your businesses to this type of risk. The extra costs from assessed penalties and regulatory fees generally cost at least 3x more than having a reputable payroll company handle your payroll and tax filing.

The most common payroll mistakes include:

  • classifying employees as independent contractors
  • improper issuing, reporting, and keeping of records
  • failing to meet deadlines for reporting and depositing withheld taxes
  • excluding gifts and prizes from taxable wages
  • excluding reimbursements from employee's income
  • late, miscalculated, or poorly reported payroll
  • forgetting to add new State Unemployment Insurance (SUI) rates

There is a huge amount of data that must be properly maintained such as regular pay, bonuses, reimbursements, awards, live checks and the cost of employee paid benefits.  These figures must then be reported to the Department of Revenue, Department of Labor and the IRS. Even a small employer with five employees can be responsible for more than 20 form filings and tax payments.

Most of the mistakes that happen during any payroll process are due to human error. If the individual who keeps up with the information is not aware of all of the deadlines and applicable laws that opens up a pretty large window for mistakes.  Another common factor that leads to payroll mistakes is using a system that hasn’t been setup properly.   

A payroll system that is not setup correctly will not provide accurate wage and tax calculations.  Even if you run each payroll, file and pay each tax on time you can still have calculations errors that will end up costing you money.  Professional payroll providers are familiar with situations that can lead to these types of errors and can setup their systems for you so that the information you enter is always calculated correctly.  And in the event something does go wrong, they can also assist you in getting the issue corrected by working with the taxing agency on your behalf.  

  1. Save Time and Money

Outsourcing your payroll management can save you a lot of time and money. You won't waste time researching and learning about the tax laws or keeping track of regulatory changes.

Chances are you and your employees don't like manual data entry. It's tedious, takes a lot of time, and causes carpal tunnel.  You and your staff can use the time that’s saved from handling payroll tasks working on areas that will keep them motivated and also be more productive for your business.

Oftentimes the cost of hiring an independent payroll company is less than the total hourly wage and payroll taxes you would pay for and internal person to run the payroll, file and pay the taxes, deal with any tax issues and prepare your year-end W-2s.

For instance, if you do your own payroll, you will have to buy the software or pay a monthly fee for an online software package. You will have to hire someone with those skills or, you'll have to pay to train one of your employees.

On top of those costs, you'll also have to track software updates and monitor to make sure the system you use is updated each time tax rates, social security or 401k limits change.

But’s the worst outcome isn’t just having to pay a tax penalty.  In the event of serious payroll error employees may not get paid correctly or on time.  Whenever that happens even your best staff’s morale and trust will decline. 

So making mistakes with payroll won’t just cost you money in penalties and fees. It can also cost you your employee’s confidence.  

  1. Mitigate Payroll Compliance Risks

Payroll management involves complying with a multitude of local, state, and federal laws. Working with a payroll provider can give you peace of mind and help keep you compliant.

Some of these compliance laws include the Fair Labor Standards Act, Equal Pay Act, and Federal Insurance Contribution Act. Not to mention the Affordable Care, Federal Unemployment Tax, and Consumer Credit Protection Acts.

Knowing how to sort through all of these laws can become a complex process. This leads us to the next reason below.

  1. Get Trained Tax Professionals

Companies providing payroll services offer you access to professionals with a specialized set of skills and knowledge for an affordable rate. These payroll pros know all the tax regulations, rules, and compliance area you need to follow.

Having access to these professionals will save you money because you won't have to hire or train in-house. They also limit your exposure to penalties by offering service guarantees ensuring you that all the relevant information has been calculated properly when filing your payroll taxes.

Other benefits include the access you have to ask questions when issues arise that you don’t understand. You can receive quick access to payroll information and also get in-depth data analysis and advanced reports whenever the need arises.

  1. Gives You Peace of Mind to Focus on Your Core Business

It gets overwhelming for small business owners when they do everything by themselves. They deal with sales, marketing, customer service, human resources, training, procurement, and payroll. It can be too much.

One principal you’ll see again and again in most basic training is that businesses should focus their attention on the things that make them money.  This often means that it’s best to outsource complex administrative tasks such as payroll to an outside provider. By doing this the owner can get peace of mind and reducing the burden of the entire payroll process so more of their time can be dedicated to growing the business.

Learn More About Managing Your Payroll

These 5 reasons provide a pretty clear picture on how you should approach your payroll management. Though you can always decide to do it yourself, partnering with a payroll provider gives you a lot of benefits and ultimately will save you time, money, and resources.

Contact us to learn more about our timekeeping and payroll solutions.

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