Payroll Outsourcing

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Companies have options when it comes to managing various human resource and accounting responsibilities. This includes outsourcing payroll to a third-party firm that provides time and attendance software and payroll processing.  

Types of Providers for Payroll Outsourcing 

There are several choices when outsourcing your payroll. For startups, a certified public accountant can handle the basics. Expect less availability though as this professional will likely become bogged down during the busy tax season. Payroll software that requires self-management and data entry may be a good start, but as the business grows, your current accounting and HR team will find this time consuming to maintain.

Another option in payroll outsourcing is the use of a full-service payroll provider, that often offers national services to businesses of all sizes. A professional employer organization (PEO), which offers payroll services and HR support can be less costly when services are bundled together and makes sense for a growing business. 

Before partnering with any payroll outsourcing company, it’s important to understand what to expect and to determine the most sustainable option.

Advantages of Outsourcing Payroll

Payroll outsourcing has become a great way for any organization to reduce costs while remaining efficient and compliant. This is especially true for small companies that are growing, but only have a single human resource person to handle everything related to employees. Instead of bringing a salaried payroll manager on board, a company can use an outsourced payroll arrangement. The main advantages of outsourcing payroll can include: 

  • Access to a secure payroll and time management software program 
  • Live customer support for employees who have questions or need to make changes
  • New hire reporting to comply with state laws
  • Tax filing and handling year-end reporting responsibilities
  • Avoiding tax and payroll mistakes, including IRS penalties 
  • More time for HR and Accounting to focus on other matters

Consider also that outsourcing payroll can help reduce the company’s liability should a mistake happen. Payroll outsourcing firms are required to stay up-to-date with all employment laws and payroll regulations. They provide another set of eyes on data so that it’s more likely that any errors will be spotted and corrected before any damage is done. 

Typical Outsourced Payroll Services

Most payroll outsourcing agencies offer services like securely processing payroll with a payroll software program. This includes handling all pre-tax deductions, such as FICA and Social Security taxes, benefit premium deductions, and garnishments. The payroll outsource company will provide regular reports to HR so that costs can be tracked, and handle all the direct deposit or mailing of paychecks and pay stubs. 

Be sure to take the time to determine the direction your company is taking before choosing to outsource payroll. Understand how much growth is expected and how many employees you plan to have on your payroll a year from now. If you have employees in different states, you will need a company that can handle this. 

Evaluating Payroll Outsourcing Companies

Choosing a payroll outsourcing company should be a careful decision made by the leaders of your organization. Any tasks that have become too cumbersome should be the first services to seek out in an agency.  For example, using a punch card attendance system and having to collect weekly paycards is very inefficient. In this case, the company can choose an electronic payroll system that includes modern timekeeping and payroll management. 

Another factor to consider when evaluating payroll outsourcing companies is customer service and support. It’s common for human resources and accounting to have questions about payroll. Being able to run custom reports is a good feature, but the company should also offer direct access to a real human being who can answer specific questions. This is also helpful for employers who need to make changes to their direct deposits, address, or have questions about items on their earnings statements. 

Always evaluate payroll outsourcing companies based on their business ratings and reviews from other customers. The Better Business Bureau can share how well payroll outsourcing companies are doing. Dun & Bradstreet offers consumer reports on payroll outsourcing firms. Ask for client references in your specific industry to get a better idea of how the payroll outsource firm handles things. 

Payroll Outsourcing Costs 

When selecting a company to outsource your payroll to, it’s important to have a good idea of what the costs are. According to Fit Small Business, the more services you add, the more expensive payroll outsourcing can become. If your business is small, you can expect to pay in the ballpark of $100 per month to as much as $1,000 for larger plans. Some companies offer packages, combining HR with payroll services. Other services, like distributing W-2 forms, can add further costs. 

When in doubt, ask for detailed pricing upfront and choose the company that best fits your needs.  If all possible, find out if there is a brief period where you can test-drive the service without committing to it first.

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