What are the Benefits of Outsourcing Payroll ?

Benefits of Outsourcing Payroll ?

Why should I or what are the benefits of outsourcing payroll ? Skip Lilly, Sales and Marketing Manager from Vision HR. Inc, a payroll processing and Human Resources company explains. After working with business owners for nearly 2 decades over the decision of whether to outsource payroll or keep doing it themselves, I have come to these 10 key factors why businesses decide to outsource payroll.

benefits of outsourcing payroll

1. Time Savings / Productivity

Payroll processing inside your business is a time-consuming process. Keeping track of benefit deductions, garnishments, new hires and terminations, paid time off as well as federal and state regulation changes can be frustrating tasks. Each year significant labor hours are spent preparing W2s and ensuring that they are sent out timely. Outsourcing payroll allows employers to concentrate on their core business and frees up the business owner, human resources or accounting personnel to work more on strategic tasks that could ultimately affect your bottom line. Regardless of the number of people employed by your business, attending to payroll demands a great deal of time and attention to detail. Pay period follows pay period, requiring the business owner to input critical amounts of data and double-checking for any keying errors- time taken away from tasks a small business owner must attend to. (Like Customer Service) Those repetitive tasks should not be hours taken away from a key management or owner’s daily productivity. Outsourcing payroll immediately frees up precious time. Employers only need to make contact with their outsourced payroll specialist by approving time once each pay period.

2. Reduce costs

The direct costs of processing payroll can be greatly reduced by working with a payroll provider. Big businesses can afford to maintain robust payroll departments. However, Small/medium sized businesses, having an in-house payroll process is a money burner. If your business has fewer than 30 employees, there’s a very good chance that you can save money by outsourcing your payroll operations. Do the math. Figure out how many labor hours your employees are devoting to payroll-related activities, (Calculating payroll each time period, printing, signing, and distributing paychecks or pay stubs, computer software and program maintenance, training and support, keeping up with changes in tax rates/laws, preparing and remitting payroll taxes and returns to government agencies, w-2’s, garnishments, new hire reporting, generating reports for in-house and accountant use) calculate how much you’re spending and compare the amount to the plans offered by several payroll-services providers. You’ll probably be surprised by the result. When you consider the cost of an employee’s wages, then add in benefits, that can really add up quickly. If you are the owner of a small to medium size company and you are trying to do payroll yourself or inhouse, the cost of the time spent is even greater. If you outsource payroll, you don’t have to worry about your payroll processing company calling in sick, resigning, wanting to take a vacation OR wanting to request a possible maternity leave that you have to pay for. There’s also the matter of confidentiality when it comes to payroll. If an employee wants to “share” how much a fellow employee is making that can cause extreme drama in the workplace. A common response from several clients is, “It is much more efficient than if I asked my bookkeeper to handle it, or if I tried to handle it myself.” Most accountants will also tell a business owner to outsource payroll. Many of my referrals come from accountants who have just recommended the benefits of outsourcing payroll to their clients.

3. Avoid IRS penalties / Mistakes

The IRS states, 40 percent of small businesses pay an average penalty of $845 per year for late or incorrect filings and payments. Penalties for errors, omissions or late payroll tax filings can be very costly. Payroll mistakes are painful, angering employees and not reporting timely or accurately to the government post red flags to the IRS. Small business owners aren’t experts in the challenging world of government tax regulations. At the same time, they are legally responsible for any cases of misrepresentation or a failure to accurately report employment taxes to federal and state government agencies. Mistakes lead to audits and penalties—situations no business wants or needs. Government rules and regulations are always changing and business owners can’t be expected to stay on top of these changes. Professional payroll providers, on the other hand, must stay current with rules, regulations and changes in tax rates. A good payroll-services provider is far less likely to make a serious error than your in-house staff. Many outsourced payroll providers calculate payroll taxes, manage filings and payments and will assume the cost of penalties due to incorrect calculations or late payments so long as you provide the necessary information and funds on time. Keeping abreast of state, federal, local and industry-specific regulation changes can be at best a real challenge. A reputable outsourced payroll provider has a staff dedicated to keeping up to date on all of the changes that could affect your payroll, ensuring that you stay in compliance.

4. Team of Experts

Most business owners and payroll related staff don’t have time to research and study constantly changing regulations, withholding rates, and government forms. By outsourcing payroll, a small business can take advantage of expertise that was previously available only to big companies. The most valuable payroll companies have a team of experts who handle many areas of Human Resources and Payroll. Some of those would be a benefits department that would handle the administration of benefits and deductions in the payroll system, workers compensation experts, who would administer the changing of class codes should a job change for an employee, human resource experts who would help in employee issues and HR strategy. Also, if your payroll service has the ability to offer a 401k plan, that is an added benefits as those transactions are also involved in the payroll administration. Make sure you engage a qualified team of experts who can administer all the aspects of your HR and payroll needs.

5. Enhanced Security

Payroll processing is a complex and potentially risky business operation. Even with long time trusted employees, there is always a risk of identity theft, embezzlement of funds, or tampering with company files for personal gain. There’s also an evident risk when using in-house payroll software: How safe and secure is payroll data on the company’s server or network? This very real question can consume a business owner’s energy and attention as well. Do you have the time and energy to closely supervise your business’s payroll for time and rate abuses and other unethical activities? Most payroll services have technologies that can spot and alert clients to various types of payroll fraud. Additionally, online payroll solutions offer a “safe haven” for your confidential payroll data. In addition to redundant backup and multiple server locations, a quality payroll provider invests in state-of-the-art systems for storing and protecting data, simply because it’s part of the service provided to clients.

6. Employee Access / Gaining a Human Resource Information system(HRIS System)

Human Resource Information Systems (HRIS) have become one of the most important tools for many businesses. Even the small, 20-person office needs to realize the benefits of using HRIS to be more efficient. Many firms do not realize how much time and money they are wasting on manual human resource management tasks until they sit down and inventory their time. It allows companies to cut costs and offer more information to employees in a faster and more efficient way. Below are some examples of how employers and employees gain access to HR Information:

Employers Gain ability to:

View Invoices and Payroll Reports
Access and Update Employee Information
Enter New Employees
Enter Time Reporting Information
Offer Benefit Open Enrollment
Communicate with Employees
Create Custom Reports
Track PTO ( Paid Time Off)
Upload Benefits Plans and Custom Benefits Documents
Upload Employee Handbooks and other HR PDF’s
Track Licenses / Certifications for Employees
Performance Reviews
Training Records
Total Compensation Reports

Employees gain access to :

Review Checks
Review Benefit Information
Update Information
Any Corporate Documents
Online Benefits Enrollment

Using the right payroll company with an HRIS system allows small to medium sized business access to this platform without having the expense of buying and maintaining it, another large company benefit of outsourcing payroll.

7. Avoid Technology Advancement costs

A constant question for small business owners is whether they have the latest version of their payroll software and the most recent tax tables installed on their computer. Using the wrong tax tables can result in stiff penalties. Paying a maintenance fee and having to upgrade software is a fixed cost ongoing. Outsourcing payroll removes those costs / headaches and keeps payroll running smoothly.

Benefits of outsourcing payroll

8. Losing payroll expertise

Multi- tasking payroll responsibilities with an overworked office manager or accounting employee, depending on a relative or spouse to run payroll, whatever the situation, every business with in-house payroll runs the risk of receiving notice that your payroll person is taking an extended vacation, FMLA, fell ill, took another job or not able to do payroll. If your bookkeeper or controller gets a new job, they will walk out the door with their knowledge of the payroll process and how you do it. Outsourcing your payroll will assure retaining the knowledge of all the ins and outs of payroll-related tax laws and regulatory mandates on the federal, state and local levels. It’s what payroll companies and experts are trained to do and part of the guaranteed service provided. Savings in time and money, greater data security and the comfort of knowing experts are handling your payroll functions are compelling reasons to explore the benefits of outsourcing. Your staff could try to achieve the same level of understanding, but it would take a large investment in time and effort. It’s what they’re trained to do and part of the guaranteed service they provide. With a payroll service, output speed and quality won’t vary in accordance with vacations and illnesses. You also won’t have to spend time helping new hires understand your business’s payroll system. If you experience turnover or inability to work for periods of time in your payroll area of your business, outsourcing payroll provides a framework to be able to train an employee to report hours and communicate the payroll data without experiencing the pain of a missing skillset of an expensive in house payroll professional. This one of the key benefits of outsourcing payroll.

9. Offer Direct Deposit

Providing direct deposit to employees is difficult if a company doesn’t use an outside payroll service. Increasingly, small businesses recognize that employees want direct deposit. Not having to make a trip to the bank is an important convenience for them. More importantly for business owners, direct deposit eliminates time-consuming and error-prone paper handling and the need to reconcile individual payroll checks every month. Using direct deposit reduces the risk of fraud by eliminating the use of paper checks that could be altered or counterfeited. Unlike a paper check that bears your account number for all to see, when you use direct deposit your account number remains confidential to your financial institution or payroll provider. Confidentiality is another benefit of outsourcing payroll.

10. Worry/Peace of Mind

With the help of a professional payroll service provider, the hassle and pain often associated with processing payroll is gone. You provide the basic information, and your payroll company takes care of the rest. And with guarantees of error-free payroll and tax filings and payments, you can eliminate the worry that many experience when it comes to paying employees and taxes correctly and on time. There’s a lot to be said for the peace of mind that outsourcing payroll services can bring to a business owner or manager. No headaches, no hassles: You’re left to focus on running a profitable business. A clear focused mind is one of the true benefits of outsourcing payroll.