Why Outsourcing Payroll Makes Sense
I know that most would think it self-promotion, but I truly believe that I would say the same thing if I were in a different industry. Processing your own company’s payroll COSTS you money. I don’t mean in the way some sales people use the phrase, but actually hard dollars you can put in the bank. Here are some of the biggest offenders:
Manual calculation: Believe it or not, some business still manually calculate their payroll, and several still use a manual computation for time. The American Payroll Association estimates the human error rate is between 1% to 8%. That doesn’t count the labor costs of these computations, which can be up to 7 minutes per employee (including timekeeping tracking). 20 employees paid twice a month is almost 2 and a half hours.
Penalties: The Internal Revenue Service has become very unforgiving in their enforcement of payroll taxes and penalties. I know from personal experience that dealing with these issues with the IRS are time-consuming and expensive. On average, there is almost a 50% error rate on the IRS calculations for payroll penalties! When you use a professional payroll processor, you don’t have to worry about those issues, because the processor takes responsibility for them.
Complexity: Nothing seems to be simple anymore. Not only is Congress complicating things, but states are becoming increasingly more aggressive in pursuing employers that cross state lines. In the past twelve months, we’ve had the New Hire Credit as well as the Social Security reduction for employees. An employer can’t just “do it the way we did last time”. Do you have an employee that lives in another state, but commutes to your state for work? Employees, that travel for work in various locations? Chances are you need to be reporting in these additional states. In the past, when coffers were full, states didn’t bother chasing these employers. Now with budget shortages, states are going after everything. Many times the penalties for not filing are much more than the actual tax!
When you look at the pricing of most full-service payroll services, many times the initial cost savings from employee time and error pays for the service. The complexity and penalty issues are icing on the cake. It’s time to revisit outsourcing of payroll!
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