Why Outsourcing Payroll Processing is a Smart Move for Your Business

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Businesses are required to complete and meet obligations to employees. Payroll problems are difficult for today’s high-tech business world. A business’s payroll division oversees multiple components of employee compensation. It manages payroll processing, direct deposits to employee’s bank account, FICA, FICO, State Income tax payments to government entities including the State and the Federal Government, reporting requirements, time and attendance tracking, company payroll management reports, worker’s compensation, 401k’s plus other types of retirement account reporting, unemployment claims, vacation time-off and more. This is a giant set of tasks to manage for a small business while running the business itself. Putting time into these tasks means a business owner is not focusing on building and managing current business.

What is the Appropriate Amount of Time to Spend on Payroll?

The practical way to answer this inquiry is a business owner needs to calculate the amount of time spent working on payroll each week, every two weeks or month and multiply it out for 52 weeks, 26 weeks or 12 months. After the totals for each segment of time are calculated, a business owner needs to look at the true cost of working on payroll by comparing it to the amount of business not generated related to working on payroll instead of managing and building the business. To make the comparison and analysis useful and valid each payroll task needs to be included in the assessment including managing tax reporting, employee benefits, retirement funds to new name just a few. Several studies over the years indicated in real numbers that business owners spend 3 full weeks a year dealing with federal tax problems. Add all the hours spent dealing with all the other payroll problems and tasks and it becomes readily obvious managing payroll is costly from both a time and business growth perspective. There’s not a fixed number or an empirical study out there that provides when a business owner should hire a payroll processing company, instead of doing it themselves. However, it’s easy to assess if an owner is spending 10 – 20 % of their time working on payroll and all its accompanying issues it’s likely a smart move to hire a company to process payroll to save time and money and then put those savings into managing and building business.

Look at the answers to questions below to determine if it’s time to hire an outside payroll processing company:

  • Is the time spent on payroll exceeding your comfort level?
  • Is your business growing, adding more employees and now is
    payroll becoming a much bigger task than before?
  • Are payroll mishaps become more costly due to tax penalties assessed
    for filing errors charged by the IRS?
  • Is payroll taking up so much time that the critical time needed
    to manage and grow your business is compromised.

From a logical assessment perspective, if the responses to this set of questions happen to be yes, it’s makes good sense to outsource payroll processing. The monthly cost of payroll processing fees, while not nominal, is affordable for most businesses. The benefits of outsourcing payroll processing are time-savings, cost savings generated from reduction in penalties and fines and the improved ability to focus time on and energy towards building and growing your business.