The Benefits of Payroll Outsourcing For Businesses of All Sizes
Definition of Payroll Outsourcing
Payroll outsourcing is where businesses hire a third-party provider to handle all of the related payroll responsibilities. There are two categories of payroll outsourcing. The first is the hiring of a payroll company and the second is hiring a Professional Employer Organization (PEO). The primary difference is that a PEO becomes the direct employer, with a payroll company, the employees remain with the company.
Benefits of Outsourcing Payroll Services
Most employers do not have the time or technical expertise to handle payroll functions. Outsourcing ensures compliance with federal, state, and local tax requirements as well as saves time by reducing costly mistakes.
Additionally, outsourcing provides better protection of private employee data. Most employers don't want a clerk level person knowing what the CEO makes.
Choosing the Right Payroll Provider
There are several options when selecting a payroll provider. There are large, national payroll outsourcing services like ADP and Paychex. There are also national PEO's. Most payroll companies are local or statewide. This is primarily because laws vary by city and state, and keeping track of all of them is impossible for small firms.
When looking at a potential provider, you will want a full-service payroll provider with a payroll team to back it up. Having multiple payroll experts ensures that employee payroll runs smoothly even when someone is out sick.
Using a PEO is generally more expensive than using a payroll company, and they generally include benefits administration in their service. If you don't want to change your employee benefits or worker's compensation insurance, then a PEO probably isn't for you.
Qualifications and Experience
The first thing that you need to ensure is that the payroll company has experience in your city and state. If you have employees in multiple states, you likely will need the expertise of a national provider.
Second, you need to look at how long they have been in business. Unfortunately, there is a lot of fraud in the payroll business. The IRS will still look to you to pay any taxes, regardless of whether you hired a payroll company, even if they were paid the money for the taxes.
Third, look at whether the company is licensed in your state. Not all states require licensing, but if your state does, ensure that the company you hire is properly licensed.
Lastly, inquire as to the insurance the payroll company has. If they make a big mistake can they financially correct it? Unfortunately, most insurance doesn't cover fraud.
Cost Savings
Although you may not be outsourcing payroll to save money, you likely will. There is the time that your internal employee spends performing payroll responsibilities, but there are other cost savings opportunities.
For instance, most payroll companies offer direct deposit services. This saves a lot of time on payday instead of using paper checks. For employees without bank accounts, debit cards can be issued instead.
Responding to government inquiries also takes a lot of time. Your payroll company should handle all of this for you.
And don't forget correcting mistakes. Reissuing checks or processing additional checks takes time. Failure to file payroll tax returns properly causes hefty penalties. All of this adds up to a cost that is likely greater than what you would pay a payroll outsourcing company.
Features and Services Offered
Some of the wide range of services you need to look for in a payroll outsourcing provider are:
Direct Deposit
Payment of Payroll Taxes
Tax Compliance (filing of all reports)
Reporting for internal accounting
Time & Attendance (time cards)
Paid Time Off (PTO) Tracking
Scheduling
Benefits Reporting
Employee and Employer Access to information
Independent Contractor Payments
You also need to consider response times when there are payroll mistakes. There are no small payroll errors, and you as a business owner don't want to have to wait to resolve them.
Security and Compliance Requirements
When selecting a payroll vendor, consider their entire payroll process. Do they have systems and processes in place to ensure important things like paying federal taxes timely are in place.
All payroll service providers use software. What is their IT security processes? Can they ensure that your data is safe from hacks? And if there is a breach, how will they fix it?
Again, ensure that they are familiar with all of the compliance requirements where your employees work.
Payroll Functions and Responsibilities
There is a lot more to payroll besides writing checks. Many payroll professionals also provide limited human resource services. Most PEO's provide HR services.
Start with determining your company needs, and determining exactly what you need to outsource. Then ensure that the vendor you select can deliver.
Setting Up Direct Deposit Payments
Who will set the payment information for new employees, or change the bank information for existing employees? This is a highly sensitive area that is highly susceptible to fraud. Make sure this a good process to validate information to ensure no nasty surprises occur.
Calculating Taxes and Withholding Funds for Tax Filings
You can calculate tax withholding through some accounting software like Quick Books. But are you ensuring you have the proper documentation to back it up? Do you have W-4's from employees noting the changes? If you don't the employer is opening themselves to legal exposure.
Good payroll service providers have online options for employees to make these changes themselves. This takes the employer out of the equation.
Once you've computed the withholding and deducted from the employers checks, you have to make sure that the taxes are remitted to the proper authority in a timely manner. Failure to do so results in severe penalties.
Once the taxes are paid, you have to make sure that the proper payroll reports are filed on time.
Processing Wages, Bonuses, & Commissions
Processing of bonuses & commissions is different than processing normal wages. You have to use separate withholding tables in most cases. Payroll processing companies can identify these and process correctly. Processing them incorrectly can lead to over or under withholding for your employees. This will not make them happy come tax filing time.
Generating Reports on Employee Earnings & Tax Liabilities
Ensure that your payroll provider can give you your data in the way you need it. This is crucial for correct financial accounting. Do you need wages by department? Ideally, you will have online access to run customized reports.
You should receive or have direct access to the reports filed, including verification of the payment of tax liabilities. Again, you as the business owner are responsible for this. Outsourcing will not matter if the IRS comes knocking on your door.
Updating Federal and State Tax Regulations as Needed
The COVID debacle showed us how quickly these payroll regulations can change. Changing forms, deadlines, and payroll requirements can be a massive headache even for seasoned payroll professionals. How are you going to handle it while trying to run your business?
Maintaining Accurate Records for Audits & Compliance Purposes
One of the scariest things a business can endure is a Department of Labor audit. This is where time & attendance services are invaluable. You need to make sure that you are tracking time for all eligible employees to ensure they are paid overtime where applicable. Failure to pay overtime generates large fines. If you don't have accurate records, the government will take the employees word for it, and you will be up a creek.
Having accurate records can save you money on your worker's compensation insurance as well. The insurance is computed by employee based upon the work that they do. If you have the proper records, you won't be surprised with a huge insurance bill.
Conclusion
In conclusion, payroll outsourcing is a game-changer for businesses of all sizes. By freeing up valuable time and resources, reducing errors, and ensuring compliance, outsourcing payroll allows you to focus on what truly matters - growing your business. So, whether you're a small startup or a growing company, consider the countless benefits of choosing Core as your Payroll Partner and watch your business thrive. Trust me, your bottom line will thank you!
