Managing payroll operations can be a hassle for small businesses.

While many business operators prefer to handle payroll internally, many others choose to outsource it to professional services. Outsourcing is often the right option for small businesses and startups that need to ensure efficiency and compliance, as well as growing businesses that are bringing on more staff and need to scale their current payroll process.

Outsourcing your payroll can allow you to:

1 Focus on Your Business

The IRS reports that up to 40% of small businesses make payroll errors.

No matter whether a small business has hundreds of employees or just a few, managing payroll demands time and attention.

Partnering with the right payroll company can greatly reduce or eliminate the time you spend calculating and preparing reports and distributing wage and salaries. Assuming no discrepancies occur, providers may need to contact business owners only once per pay period to say that payroll has been processed successfully. This enables you and your employees to leverage your expertise and focus on more strategic revenue-building activities.

Administrative tasks related to payroll, like new hire reporting and benefits administration, can often be rolled into a payroll provider contract, saving businesses additional time and resources.

2 Avoid Penalties

Most small business owners aren’t experts in the complex world of tax regulations. All the same, they are legally responsible for any inaccuracies or delays in their filings and payments.

The IRS reports that up to 40% of small businesses make payroll errors, which can result in steep civil penalties, lost hours for reprocessing, and, of course, the dreaded audit. And that’s just for federal income taxes – employers are also required to pay state income taxes, Social Security and Medicare taxes, unemployment taxes, and sometimes local taxes as well. Reporting is required throughout the year for withholding, and unemployment and reporting requirements can get more complex if you have employees working remotely from multiple states. Professional payroll providers are required to stay on top of all these rules.

Given the numerous opportunities for costly and time-consuming errors, many business owners feel that the recurring expense of outsourcing payroll is money well spent.

3 Secure Sensitive Data

From Social Security numbers to bank account information, payroll involves highly sensitive employee and business data.

Relying on an in-house payroll employee or software on the company’s network may increase your risk for a ransomware attack or an internal data breach. Reputable external providers store and protect your confidential payroll data with state-of-the-art systems. Of course, no system or organization is entirely immune, and it’s important to ask what security enforcement tools your service uses.

Complex government regulations may also apply here. Certain states, provinces, and countries issue specific governance about protecting HR data, and a reputable payroll company will know and comply with all applicable rules.

4 Access Professional Expertise

Many payroll providers keep accountants and lawyers on staff to deal with thorny issues that may arise.

While you focus on running and growing your business, these specialists stay abreast of changing 401(k) regulations, IRS form updates, tax credit eligibility, benefits enrollment, wage laws, and more. They can automatically make the necessary updates in their payroll system and keep you informed about anything that might impact your business. For businesses with more than 50 employees, a payroll provider may also be able to alleviate the hassle of Affordable Care Act paperwork.

Even if all the rules stayed the same, the routine task of processing payroll would require time and resources. In an everchanging regulatory landscape, being able to tap into expert knowledge is a major value add.

A Few Words of Caution

While the benefits of outsourcing payroll are numerous and substantial, it’s important to proceed with care.

Not all payroll companies or specific agreements are created equal. A company that has never dealt with your industry and is unfamiliar with its unique payroll aspects – like union regulations or tips – may introduce costly errors into the system. It’s also important to scrutinize your contract and make sure that the terms and fees are in line with your needs and expectations. Sometimes, hidden costs or unneeded bundled services are included. In addition to cost, time is also of the essence – you’ll need to understand and follow the provider’s deadlines for submitting timesheets to ensure punctual processing.

Finally, it’s important to remember that as the business owner, you are still ultimately accountable for the accuracy of all payroll information. If your provider fails to properly calculate and pay wages and taxes, you are legally liable.

P.S. – How Many Pay Periods Are There in a Year?

Whether you end up outsourcing payroll or handling it internally, one key decision you must make is what payroll schedule to use. Businesses generally have four options – weekly, biweekly, semimonthly, and monthly – and there are pros, cons, and considerations for each. Find out what option works best for you and your team.

Ask An Expert

Streamlining your payroll process can help you to focus on the big picture. For more strategies that can help your business to move forward, consult your financial institution.

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