The value of outsourcing payroll
April 15, 2017
By Natalie B. Hoffmann, CPA.CITP HKP President
Business owners may view processing payroll internally as an easy way to save costs. However, a closer look at time and resources spent as well as penalty risks often reveals greater value in outsourcing payroll to a trusted third-party provider. Before taking on payroll independently, employers should consider the advantages of outsourcing.
Spend time and money on your core business.
Processing payroll takes time. Hours are spent gathering employee wage information, reviewing time sheets, calculating gross pay, determining employee filing statuses, calculating federal, state and local taxes, and deducting other pay items. That doesn’t include the time it takes to cut and distribute checks. For employers who are spread too thin, outsourcing payroll is an easy way to regain control. Outsourcing lets them refocus time and resources toward adding value to their business.
Protect yourself from penalties.
Besides decreasing labor costs, outsourcing payroll can help employers avoid expensive penalties. The amount employers are liable for may give them pause, and the IRS is more diligent than ever in its enforcement of employment tax compliance. Regulations are subject to frequent change, so staying current is difficult, and the Affordable Care Act has made compliance more important and challenging. Employers who outsource need not fear the ACA or annual 941s, W-2s and 1099s. Third-party providers use their professional knowledge and experience to help ensure compliance, greatly reducing employers’ exposure to penalties for incorrect tax calculations.
Offer more to your employees.
Outsourcing payroll gives many employers the ability to offer benefits by eliminating the administrative burden it takes to manage the process. Many smaller firms may not have this capacity, as the process requires proper technology and know-how. Yet offering benefits is one of the most important ways to attract and preserve talent in the workforce. Payroll service providers that offer a human resource management system allow companies to use open enrollment so employees can choose their benefits. They also link benefit deductions to payroll, again easing the administrative burden for employers.
Direct deposit is also made easy through outsourcing. Employees expect their pay on time and delivered conveniently, and direct deposit has become the standard. Using direct deposit further reduces the likelihood of payroll error and can help boost employee morale.
Secure your payroll knowledge.
Handling payroll requires specialized knowledge of the business and the payroll process. Businesses that have one employee who processes payroll could lose years of accrued knowledge if that employee decides to leave. Payroll service firms remove that risk, offering a wealth of knowledge from a team of continuously available professionals.
Find the right firm.
While outsourcing has many advantages, responsibility ultimately rests with the employer, who is penalized for failed or incorrect payments. It is vital that employers choose a trustworthy provider. Payroll services require a high level of effective communication, so customer service is paramount. Employers considering outsourcing should check for references to be certain of the firm’s service quality. Outsourcing payroll to the right firm can positively influence a business’s bottom line, maximize the value of limited human capital, provide protection from expensive penalties and help ensure the business’s success into the future.