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Benefits of Payroll Outsourcing

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Although paying your employees is fundamental to your business, payroll administration is most likely not part of your organization’s core business strategy. In fact, payroll preparation is often assigned to someone in accounting or human resources with other primary responsibilities. When payroll isn’t a primary focus its can be very easy to make a simple mistake that can cost your company hundreds if not thousands of dollars in payroll tax penalties.

When it comes getting paid, everyone expects you to do the job perfectly, especially your employees and the IRS. When you run a perfect payroll, no one says thanks or even really notices. But make a mistake and you may never hear the end of it. Over the last five years this combination of administrative burden and “can’t-win” mentality has led more and more businesses to realize the benefits of outsourcing their payroll.

Rising Tax Penalties

Did you know that the IRS assesses more than 7.5 billion dollars in tax penalties each year? In fact, small businesses are considered the largest contributor to the annual tax gap (the difference in taxes owed and what is actually collected by the IRS). This is a huge source of uncollected revenue and has led the IRS to place collection of payroll related taxes as one of their highest priorities.

Why Outsource

Here are some other reasons why more than half of all small businesses in the US outsource their payroll:

1. Tax Compliance

IRS statistics show that one out of every three employers has been charged for a tax- related payroll error.  A reputable payroll service will guarantee your taxes are filed accurately and on-time.  Many providers will also take responsibility for penalties that result from processing errors or non-compliance.  Avoiding one penalty can potentially offset an entire year of payroll processing fees and immediately justify the cost of outsourcing.

2. Cost/Time Savings

Have you ever thought about how much your time is worth? Consider how much time you spend managing payroll, which takes time away from revenue-producing activities.On average, small businesses spend $2,600 per year in labor costs directly associated with time staff spent processing payroll.  These costs can be greatly reduced when partnering with an outside payroll provider, saving you both time and money.

3. Accuracy and Expertise

Even with the simplest of payrolls, it's easy to make mistakes. Payroll regulations and taxExpertise           requirements are constantly changing.  Many business owners and controllers simply don’t have time to keep up with all these changes.  Without consistent training in payroll compliance your company could face stiff penalties and unhappy employees.  A good payroll provider will be up to speed on all of the payroll-related tax laws and compliance issues.  This knowledge makes them far less likely to make errors and most services will typically guarantee payroll accuracy.

4. Reliability

Processing payroll in-house relies solely on the staff assigned to do the work.  Without outside assistance payroll can create operational risk since continuity can be seriously disrupted when an employee leaves the company, goes on vacation and has an unexpected illness.

5. Speed

Payroll providers have access to cutting edge technologies and ACH networks which allows them to process even complex payrolls quickly and easily.  This access also gives them the ability to scale up and down with your workforce and gives you the option to pay your employees by direct deposit which is faster, more efficient and ultimately safer than issuing live checks.

6. Peace of Mind

Even when everything goes smoothly payroll can be a headache.  Outsourcing payroll gets rid of all of the hassles associated with running payroll and gives you the freedom to focus on doing activities that build your business.

Sources: A 2011 Bloomberg BNA survey revealed that almost half of businesses in the US were already participating in some form of payroll outsourcing.


Can you think of other reasons to outsource payroll? Please share by leaving a comment!

From federal to state and local tax filing, AdvaPay Systems offers guaranteed filing and deposit of payroll taxes that not only protects our clients from liability but also provides peace of mind. [social_share/]

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