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Five Things to Consider When Outsourcing Your Payroll


Your business has grown, and now the task of managing your weekly payroll has become unmanageable. Or maybe you – or your staff – simply don’t have the knowledge and expertise to take on the payroll every period while also trying to manage all of the tax and benefit issues that come along with the process. Whatever your reason for deciding to outsource your payroll functions, there are some important things to consider when you choose a service. It might be tempting to go with a local company, or the least expensive payroll service, but when it comes to handling this vital procedure, there is more to think about than just proximity and cost.

Is the payroll system user-friendly?

Even when you hand off payroll tasks to an outside source, you still need to be involved with the process. You need to provide personal employee information, details about hours worked, benefits and deduction information and of course, banking information. In some cases, this information is static, but inevitably there will be changes. When comparing service providers, request a trial run of the software that they use for information gathering to see how user-friendly it is and how efficiently you can add and change information. If the system is too complicated, try something else. Outsourcing is supposed to reduce hassles and headaches, not cause them.

Does the payroll company charge for services I don’t need?

When you work with a large payroll company, you might find that they offer a lot of services that you just don’t need. Carefully examine what you are actually paying for, since in some cases, the standard fee includes services that you aren’t using, and shouldn’t have to pay for. If you only need a few basic services, for example, then you shouldn’t pay for human resources or other services. Look over the schedule of fees, and reduce costs by only paying for what you will use.

Do they impound taxes?

One of the major benefits of hiring an outside firm to handle paying your employees is that they will take care of filing and paying your quarterly payroll taxes. However, how they manage that is of concern to you. In some cases, the company will take the money that you owe before it is due and hold on to it – earning interest for the payroll company until it is sent to the IRS. If your provider does this, it could create short term cash flow problems for you if you don’t plan to pay the tax bill until it is due. Knowing upfront what the company’s policy is will prevent unpleasant surprises, or may lead you to use a different firm.

What is the payroll company’s reputation?

You wouldn’t hire an employee without checking references, so why would you trust your company’s payroll and finances to someone you don’t know? The best way to find a payroll processor is via referral, but you should still check references, and check for complaints with the Better Business Bureau and other agencies. Find out how long the company has been in business, how they have handled errors or disputes and how many clients the company has. If you aren’t comfortable with what you find, keep looking.

How well trained are their employees?

Tax and payroll laws and regulations change all the time, and one reason many companies choose to outsource the payroll tasks is that it’s difficult to keep up with all of the changes. However, when you hire an outside company, it’s reasonable to expect that the service and its employees are up-to-date on all of the current rules and processes. Ask for information not only about the experience and knowledge of the service’s employees, but also about how the company stays on top of changes in the industry. Annual meetings or updates aren’t enough – you want a company that knows about and implements changes immediately.

Deciding to outsource your business’s payroll is a good decision, and can save you a lot of money, time and hassle. However, if you choose the wrong provider, you’ll only increase the headaches – and potentially leave yourself open to liability. Do your homework, ask questions, and you’re certain to find the company that is perfect for you.

See Also:

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4 Practical Ways to Keep Your Business Profitable during a Recession


About the Author:

John Michaels is a district manager for a large payroll processing company. He holds a degree in accounting, and started his career managing the books for his father’s small hardware store in the Midwest.