Payroll is the process of paying the salaries of your employees. While it may seem straightforward on the surface, it is a daunting task when you factor in the changing payroll laws, various tax deductions, and managing records effectively. There’s a reason why large corporations have a dedicated department for payroll!
For a small business, doing payroll zaps a lot out of your resources and productivity. Many businesses opt out of processing payrolls in-house and instead, outsource this complex administrative task with success.
In this article, we’ll take a look at the 4 benefits of outsourcing payroll.
You save on resources
If you’re running a small business, chances are that you don’t have a payroll department and it might not be worth it to hire another employee for this purpose. Meaning, you have to train a current employee on how to handle and manage this process.
They need to take into account the various tax deductions, payroll compliance, payslip distribution, and classifying employees correctly (and sorting which files and documents to keep!). If they fall sick or unavailable when filings are due, you are in trouble.
By outsourcing your payroll to a payroll service provider (PSP), this chore can become a hands-off process on your side. This ensures that your employees are able to remain focused and productive in their work. In an organization, just a temporary interruption to an employee’s core task and completely interrupt the team’s work flow.
Stay compliant
While some pay disputes can be settled internally, the same can’t be said when you make an error in filing all the relevant taxes and paperwork to a government agency or authority. The IRS and Department of Labor (DoL) regulates the following acts:
- Fair Labor Standards Act (FLSA)
- Federal Insurance Contributions Act (FICA)
- Federal Unemployment Tax Act (FUTA)
On top of those federal regulations, different states have different laws that overlook various aspects of the payroll process. A reliable PSP will have payroll specialists that are certified by an accreditation such as the Certified Payroll Specialist (CPS) that require candidates to possess thousands of hours worth of bookkeeping experience, understanding of payroll taxes and pass through rigorous training and examinations.
Flexibility
PSPs come in many forms that you can tailor to your business. For small businesses with less than 15 employees, it may not be worth hiring a PSP for a full service. This is when you give them the authority to handle and run your employee’s payroll and they take the risk of being penalized for any mistakes on their behalf. This is often a more expensive option.
Rather, an inexpensive partial service would work well. This is often a website that helps you withhold taxes and deduct any relevant payments with a few clicks of a button. However, it is still the business owner’s responsibility to submit the forms. A drawback to this method is that you are more likely to make filing errors if you are not careful!
It is common to change PSPs when companies grow or downsize. Various PSPs offer their services specifically to small and/or medium-sized businesses.
Security and safety
Data breaches on the day-to-day operations of a business are bad enough, but when you have highly sensitive data regarding your employee’s finances, contact information, and social security information exposed, it can completely destroy the reputation of your business. When you do everything in-house, how sure are you that data on the company’s network is secure?
Your employees want to know that you have the cybersecurity needed to protect their privacy. Payroll professionals are always on the lookout for potential data breaches. Reliable PSPs regularly perform audits of payroll data and security protocols to minimize the risk of human error, and all the data that flows through the company are encrypted using the latest encryption technology.
Conclusion
For a small business that doesn’t have an experienced bookkeeper at hand, the pros of outsourcing payroll outweigh the cons. Not only will you have the peace of mind knowing that you won’t get in trouble with Uncle Sam, but the extra security a professional PSP can provide will give you one less thing to worry about as data breaches against small and medium-sized businesses are on the rise.
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