Is Payroll outsourcing your solution?

... From BizBiz NWA February 2009

By Janie Pritchett-Clark


If you’re like many small business owners, you’re still processing your payroll in-house. Do you know there is an alternative that could actually save you money, time, and frustration?

Dealing with other people’s money– your employees’– is serious business, with reams of restrictions, tax tables and deadlines to follow. According to Business Week, there are 54 steps in the process of payroll, and even in a small office that can chew up 40 to 60 hours of tedium. According to the IRS, every year 40% of small businesses pay a penalty of $845 on average for improperly filing their payroll taxes.

“Even a small company can benefit from using a payroll service,” says Kathy Vardaman owner of Guardian Wealth Bookkeeping and Payroll in Bentonville. “I’ve found that business owners who are handling payroll themselves often get in trouble not because of what they do but what they forget to do.”

Things like meeting tax deadlines, using the wrong tax tables, and not filing the proper forms top the list as the most common mistakes, Kathy claims. “These are all things that cause frustration, a lot of time to correct, and monetary penalties.”

Pricewaterhouse Cooper, the world’s largest professional services organization, reports “eight in ten of America’s fastest growing companies outsource at least one non-core business function.” The research shows that outsourcing payroll is actually less expensive than handling it internally, and that companies can then use their resources to improve other areas that need attention. Steve Hamm, managing partner of Pricewaterhouse Cooper’s middle market advisory services explains, “By farming out management of operations that are not mission-critical, they are better able to concentrate on growth, competitors and profitability.”

Here the top 5 reasons to consider outsourcing your payroll processing:

1. Save money. Statistics show the average 10-person business will spend $2,600 a year on labor directly related to payroll. If the business owner handles it, that cost can be two to three times higher. If you calculate the payroll costs unique to your company– labor, printing and distributing checks, creating tax documents, updating tax tables and software, etc., you’ll probably be surprised at its true cost.

2. Avoid penalties. Deadlines come and go. If you miss a federal, state or local payroll tax payment deadline or make a mistake, you can tack on a few hundred dollars in penalties to your bottom line.

3. Ease the pain. An unforgiving, time-consuming activity can bog you down. Outsourcing can ease that pain and leave you to focus on running a profitable business. You won’t have to fret over constantly updating payroll tax schedules, the latest software, employee status changes, and complex payroll deductions. You don’t need to keep up with the ins and outs of payroll-related tax laws, regulatory mandates and deadlines on the federal, state and local levels. You won’t have to punt when payday falls on a vacation or sick day, nor will you have to train a new hire unfamiliar with the system.

4. Add benefits. Your staff will now be free to focus on other, more creative or growth-inspiring work. And with the time and money you save, you could consider adding employee benefits, such 401K or IRA accounts, subsidized daycare, on-site chair massages, company lunch dates, or fitness center privileges. Another excellent benefit is direct deposit, which is difficult to accomplish if you don’t use an outside payroll service

5. Stay secure. Who’s supervising your payroll for abuse, fraud or shady activities? What happens if your payroll person leaves the job? Outsourcing offers accountability and accuracy on so many levels.

What payroll service should you choose? Certainly you want qualified, confidential and personalized services. Ideally, the service should have a nearby office to facilitate easy delivery of checks, expedient banking, and familiarity with local tax laws. And of course, you want a personal contact you can conveniently reach when needed.