Should You Outsource Payroll, or Keep it In-House?

As a small business, if you have full time employees, then running payroll on a regular basis is a critical function for your business’s success. Running and reporting upon payroll accurately is also critically important, and the decision will need to be made whether or not to outsource the process.

Running payroll is not just an easy calculation - make sure you have someone with experience doing it for you
Running payroll is not just an easy calculation – make sure you have someone with experience doing it for you

We’ll help you decide which path is best for your small business so that you can ensure it is done properly and avoid fines associated with not doing so.

Do you have the expertise on staff? Running payroll is not just as simple as writing checks, so making the decision whether or not to outsource this work should actually be a very easy one. If you don’t have someone who has done it before on staff, outsource the work. Multiple types of tax withholdings need to be assessed, and if you are providing subsidized benefits of any type, costs associated with these will likely need to be withdrawn from paychecks, as well.

According to one accountant, if payroll processing and reporting are done incorrectly, the penalties or fines you will incur can be far more expensive than the investment you will make in having the right resource do the work.

If you do have the expertise on staff, does the resource have the bandwidth? Even if you do have the in-house capability of running payroll, we recommend outsourcing the work. Many businesses who handle this work in house at times are late on payroll (which is illegal in many states) because it simply slips the mind and isn’t a daily priority. This degrades employee trust, and you could risk losing valuable staff members, not to mention be subject to legal action in a worst-case scenario.

Don’t underestimate the fines and consequences of running payroll improperly or late.
Don’t underestimate the fines and consequences of running payroll improperly or late.

Who can help you if you don’t have expertise on staff? Consider hiring an accountant who has experience in payroll processing and can come in and work for you for a few hours for every payroll cycle. There are also services like ADP that are not just for large businesses – the fees are not insignificant, but they are experts and work with over 400,000 small businesses to handle payroll processing.

Payroll reconciliation is a must! Regardless of whether you outsource your payroll, reconciliation also needs to occur. Ensuring that taxes were calculated properly is important, as is ensuring that costs for different employees are allocated to the proper cost accounts. If an employee is a direct part of a manufacturing process, for example, then you’d want to be sure that their costs are associated with the COGS account.

Separately, you want to make sure things like hours worked overtime and other wages are accurately accounted for. Again, whether or not this happens in house should be based on whether someone has the expertise to do it.  You don’t want this work in the wrong hands.

When considering whether to outsource your small business payroll, the most important factor to assess is whether you have the expertise on your staff to do so. Payroll is not something you want to run incorrectly, as there can be multiple negative side effects if you do.

 

 Cara Aley is a freelance writer who covers a wide variety of topics from SEO to business tips.

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