Benefits of Small Business Owners Outsourcing Payroll

July 29, 2011

Owning a business can be a financial and personally rewarding experience. As with every entrepreneurial endeavor, the positive aspects of running your own business are tempered with the other requirements that are necessary components of a successful endeavor. A few of the challenges facing you as the CEO include attracting and retaining the best employees, determining the right blend of cost and value when calculating salaries and employer sponsored benefits, achieving and maintaining profitability, managing growth and cash flow as well as insuring that you are in compliance with the ever changing universe of legislative mandates and regulations.

Most business executives wish they had more time to focus on growing and managing their businesses and less time devoted to those activities that didn’t contribute to their bottom line profits. For many entrepreneurs, the answer is to outsource those things that take up your time but don’t really help your business grow or become more profitable. If you’re concerned about the time, cost and liabilities associated with managing your employees, it might make sense to take a look at outsourcing specific accounting, HR and benefits management functions to a reliable, competent and time tested business partner.

Processing payroll especially is a high risk, low reward business activity. If you run internal payroll software, you need to keep up with annual maintenance, perform periodic data backups, create business continuity plans, define and protect accessibility to insure confidentiality and have competent staff to manage the maze of tax deposit requirements, new hire reporting and wage garnishment calculations and disbursements to name a few. In addition, you need to find a solution that goes beyond core payroll functionality to include integrate time collection, HR recordkeeping and reporting functionality among other things. As if that not enough, you have to purchase a scalable solution that can grow with you and not obsolete your investment.

Although web based in house programs can answer some of these issues (like annual updates and business continuity) many of the same issues cited above are just as applicable when you use cloud computing. And business continuity is only as good as the processes and technology that your hosted provider utilizes.

Even small mistakes are costly. Employee morale dips when you give an employee a check or a W2 late or with errors. If payroll records are accidentally accessed by the wrong staff person, pay rate differentials or other confidential information can be breached. Employees may forgive but they don’t forget. Fines for mistakes with wage garnishment payments and filings, inaccurate hours tracking and overtime calculations, COBRA mismanagement or failing to file new hires correctly are costly and unnecessary.

File late or with an incorrect amount and you’ll have to pay a payroll penalty. Every year, four out of ten small businesses pay fines for payroll tax calculation errors. When it’s added up, we’re talking billions of dollars in annual payroll tax fines. And even if you file correctly, states and federal agencies can question the timeliness and accuracy of your payments. It’s up to you to research when your tax payments were made and respond to their requests.

When you consider the potential penalties and liabilities as well as the value of your time, processing payroll and HR tasks internally can be a very costly proposition. Even if you’re already outsourcing these operational requirements, there may be room for improvement. Vendor service levels, technology and functionality change over time, and there are new capabilities that are worth checking out.