Many companies are choosing to outsource their payroll administration primarily because the benefits of outsourcing make payroll attractive to many firms. Small and medium business with limited staff and relatively simple payrolls see outsourcing payroll as beneficial. Many big businesses have also seen a cut in their staff and resources recently. Some of the common reasons for outsourcing payroll include:
“It is no longer a hassle or risk when my payroll people are sick, go on vacation or leave”.
“There is no need to install new payroll software or upgrade my system to meet new compliance requirements”.
“I no longer have time for payroll as my skills are better employed elsewhere”.
“Payroll administration and processing requires more and more legislative knowledge which is constantly changing and now someone else can do it for us”.
“It is nice to hand off payroll to someone else so that the burden of ensuring staff are paid on time is handled properly every time”.
“There is less stress at tax year end”.
Outsourcing payroll services includes but not limited to:
• Electronic data entry--time sheets and calculations of bonuses, overtime and commissions.
• Create and process payroll accruals.
• Prepare year-end returns service.
• Preparation statutory sick pay and maternity pay.
• Making calculations and paying your local, state and federal taxes.
• Arrange department summaries of month-to-date payroll data service.
Some of the benefits of outsourcing payroll include the calculation of your employee's pay, keeping you compliant with HMRC requirements and provide you with reports and information. By outsourcing payroll, you will make sure your people are paid accurately on time. When you outsource your payroll you will get:
• Peace of mind. Payroll professionals know all about payroll so you don't have to worry about it.
• Frees up your time, so you can concentrate on running your business.
• No need for an extra computer, costly software or office space.
• Legislative requirements are looked after for you.
The reality is that payroll is a joy for employees and a major administrative headache for business owners. You have to spend hours making detailed calculations, completing government reports, depositing tax money in various accounts and writing and endorsing checks. Additionally, there are quarterly filing and tax-payment requirements and the dreaded phone call from the tax collector with a question about something you had long since forgotten.
It’s no wonder then that payroll is one of the most commonly outsourced functions in a small business. Most business owners turn to their accountants for payroll. Because the accountant handles all the other numbers, many small business owners turn to their accountant. Other options include third-party services that specialize in handling payroll or get assistance from payroll software used in-house. Some of the benefits of outsourcing payroll services available for business owners include:
1. Avoid IRS penalties. According to the IRS, 40% of small businesses pay penalties of over $800 per year for late or incorrect filings. Most national payroll services provide a tax guarantee, ensuring that customers will not incur penalties because the provider takes responsibility for penalties when they do occur. In many cases, this cost-saving immediately justifies outsourcing payroll.
2. Reduce costs. The direct costs of processing payroll are greatly reduced by working with a payroll provider. Research indicates that a small business of 10 employees will typically spend at least $2,500 per year in direct labor costs associated with payroll.
3. Reduce stress. Payroll can be a headache in the best case and a nightmare in the worst case scenario. Business owners who outsource payroll eliminate an exhausting source of personal pain.
4. Direct deposit option. Providing direct deposit can be cumbersome and time consuming if a company doesn't use an outside payroll service. Increasingly, businesses recognize that employees prefer direct deposit. Not having to make a weekly or bi-weekly trip to the bank is an important convenience for them. Business owners recognize that direct deposit eliminates time-consuming paper handling and the need to reconcile individual payroll checks every month. Direct deposit also helps reduce errors in payroll.
5. Free up your time. Payroll processing is a detailed, time-consuming process. Outsourcing payroll will free up valuable staff time to pursue more important value-added and revenue-generating tasks.
6. Eliminate technology headaches. A persistent question by small business owners is whether they have the latest version of their payroll software and the most recent tax tables installed on their computer. If the the wrong tax tables are used, it can result in stiff penalties. Outsourcing payroll removes those headaches and keeps payroll running smoothly and on time.
7. Leverage outside payroll expertise. Most business owners and controllers don't have time and resources to keep up with constantly changing regulations, withholding rates, and government forms. By outsourcing payroll, small and medium businesses can take advantage of expertise that was previously available only to big companies.
8. Avoid payroll knowledge leaving with an employee. If your bookkeeper or controller gets a new job, they will walk out the door with their expertise of the payroll process and how you do it. Using an outside service eliminates that business risk and the need to train a new employee.
Payroll outsourcing can also help because they:
• Will represent you before the IRS.
• Take all the drudgery out of calculating your business's payroll.
• Offer the option of having checks delivered to your door or having them printed locally.
• Have various software packages can also file your company's federal, state and local payroll taxes.
• Include call-back help for payroll or system problems.
• Prepare reports and even printable images of checks to your email inbox within hours of submitting your payroll data.
The IRS said that the average business pays over $800 in penalties on late or miscalculated payroll taxes so don’t let price alone be your guide. Some important things when considering an outsourced payroll service are to consider how long the vendor has been in business and its employee-to-client ratio (1 to 200 is about average and lower is better).
Make sure that the vendor has experience with your type and business size as a botched payroll can be expensive in terms of both morale and finances. Be sure to ask if the company will stand behind its work in front of the IRS in the event of an audit. Get references and call them before you make a final decision on the payroll outsource provider for your business.