Outsourcing Payroll: Why You Should Do It

Some small business owners prefer to handle payroll processing in-house through accounting software or manual bookkeeping. However, most business consultants recommend outsourcing payroll. According to a recent survey, 39% of U.S. businesses choose to outsource their payroll processing.
Could outsourcing payroll be a good choice for your business? Why do millions of other U.S. businesses choose to do so? Below are a few reasons why so many have chosen outsourced payroll services:
- Save Time
Processing payroll requires a lot of time and attention to detail, whether the business only has a few employees or many. Each payroll period takes massive amounts of time spent entering data and double checking for errors.
Payroll is considered “non-critical” business because it does not directly affect or increase sales. However, it is critical in a sense that if mishandled, your business could be in a challenging position – with your employees and the government.
Federal, state, and local government laws and regulations for business payroll can be quite complicated and very technical if you are unfamiliar with them. It takes great attention to detail, not just to make sure the proper amounts are withheld from the employee’s payroll, but also to report and remit the appropriate paperwork and numbers to the relevant government agencies. Then, there is the issue of making sure the employer’s portion of taxes is calculated and submitted correctly as well.
Tax withholding is not the only thing involved in payroll processing. In addition to tax withholding, payroll also includes understanding wage and hour laws (i.e., overtime pay). Then there are new hire reporting requirements, unemployment compensation, and workers compensation insurance.
This is time taken away from more essential core activities like bringing in more business revenue or attending to customer service issues. Undoubtedly, there are always unexpected issues that arise while processing payroll, too, and it never fails to happen at the most inconvenient time.
- Save Money
It is often said that time is money, and this is true in business as well. By outsourcing your payroll, you will save a significant amount of time – that is the equivalent to money. Here are some of the following parts of payroll that would have to be covered in-house if you did not outsource your payroll:
- Calculating time for each employee, each pay period
- Printing out and signing each paycheck and passing them out to the employees or mailing them
- Preparing reports
- Submitting payroll reporting and taxes to appropriate government departments
If you recorded the actual time spent (and associated hourly wage) that your in-house payroll department spends on payroll processing each pay period, you might be surprised to see that you could find an affordable payroll processing provider for a comparable fee or even less.
Another aspect of savings that can be seen from outsourcing payroll is seeing costs cut and risk of payroll errors reduced significantly. Outsourced payroll helps your business avoid costly fees and penalties for errors in reporting. The IRS states that 40% of small businesses pay penalties averaging over $800 per year for late or invalid filings.
- Enhanced Security
The risk is always present for identity theft, embezzlement, and time records tampering. Even if you fully trust your employees, it should still be a concern to have all payroll records securely kept and recorded. Then, there is the concern about where your confidential payroll data is stored, whether on site or off site.
By outsourcing payroll processes to a reputable provider, you will gain peace of mind knowing that the businesses and employees’ confidential payroll data is kept confidential and stored safely. High-quality payroll providers can offer state-of-the-art technology to their clients to keep their data stored safely.
- Guaranteed Compliance
Most small business owners are not usually experts regarding government payroll tax regulations. Despite that, each business is still held legally responsible for any error in withholding, remittance, and reporting. These mistakes can lead to costly, and often devastating, penalties or audits. In 2016, the IRS reported that nearly 2 million business tax returns were audited, and over 900,000 businesses were fined for civil penalties.
Rules and regulations are continually changing, and small business owners just do not have the time to stay up-to-date on all these changes. Professional payroll processors ensure that all rules, regulations, and tax rates remain current and correct. Leave all of these crucial processes in the hands of the experts.