Expanding your staff is an exciting time for a small business—it means your company is growing. Managing your payroll, though, becomes a critical part of being a small business owner, even if you just have one employee. Many small businesses hire a payroll service to take care of this necessary task. Here are some factors to consider when looking at your options.
1. What Is at Stake
You don’t want to mess around with your payroll. Underpaying your employees is considered theft and is a crime. Payroll errors can lead to penalties from the Internal Revenue Service, run-ins with local regulators, and a massive loss of trust between you and your staff.
While it is possible to do your own payroll, it will require several hours per week of your time. You’ll have to remit your employees’ withholding and your own payroll taxes at least quarterly to the IRS, and, preferably, you’d do this every pay period.
Therefore, many small business owners outsource their payroll services to another company.
2. Where to Look
You’ve probably already started an initial search for payroll services via Google. You’ll come across hundreds of thousands of results. Some huge payroll companies offer their services to small businesses nationwide, like Intuit and ADP.
Beyond nationwide services, there are likely many local options. Outsourcing your payroll to a local firm might have some benefits—they are probably very familiar with local rules and tax regulations. While you need to do your research, ideally a local company has fewer clients and can dedicate more time to your payroll.
The best way to find a payroll service is to ask other small business owners what they use. One recommendation from a trusted friend is worth over 1,000 Google searches. Since so many small businesses in so many sectors use payroll services, you probably know another entrepreneur who has an option they can recommend.
3. Costs to Think About
If you make an error with your payroll, you can face severe fees, penalties, and even lawsuits. The cost of these to your bank account and your reputation can easily overwhelm the cost of outsourcing your payroll.
The price of payroll services is based on the size of your staff, the features you need, and how often the service is used. Most companies charge an annual account fee and then a fee per employee or per paycheck issued.
Another cost to consider is how much time and energy a payroll service will save you. Your time is money, after all, and doing your payroll takes up a lot of time. Even working with a payroll service takes up your time and focus. When comparing different payroll services, think about if one company will save you more time than others.
4. Outsource or Hire In-House
As your company expands, you will face a big choice when it comes to payroll services—outsourcing your payroll management to another company or hiring someone in-house to administer your payroll.
Generally, it will cost less to outsource than to hire a highly qualified payroll expert—and you’ll want to hire someone highly qualified in such an important role. An in-house hire, though, will dedicate all of their working hours to your company’s payroll.
Oftentimes, the answer to this choice depends on the size of your company. It can be worth the salary of a payroll administrator if your staff is large. With a smaller operation, outsourcing is likely a cost-effective solution. Due to the high stakes and time commitment, doing your own payroll is not recommended unless you are the only person on your staff.
5. Ensuring IRS Compliance
The IRS will ultimately hold your business responsible for a payroll tax error, even if you use a third-party payroll service in most cases. However, many payroll services guarantee compliance with IRS rules and will pay any penalties if an error is made—look for this when comparing options. This not only saves you money, but it provides peace of mind.
6. Insights From Your Payroll
Your payroll is a dataset, and you can almost always learn something from any data related to your company. A secondary benefit of outsourcing payroll is that they will often provide reports that can help you better understand your staffing situation. Ask potential service providers if they will give you helpful insights over time.
7. Automation Options
Either if you’re doing your own payroll or you have hired a payroll specialist, you can make your payroll tasks much simpler by using some of the latest payroll software offerings, like Gusto. Even if you outsource payroll, using technology might be recommended according to your agreement with your service. Especially as you are getting started, automating your payroll will save you lots of time.