In the past, well-known business consultants have said that businesses should outsource non-core services like payroll processing.
Many businesses do their payroll accounting, either by hand or with payroll software. Others hire payroll specialists to do it for them.
While some organizations choose to conduct payroll activities in-house through manual accounting or do-it-yourself payroll software, others have discovered the value of a professional payroll service. When deciding whether to outsource this job, the time and resources necessary to accomplish critical payroll duties often play a significant role in the choice. According to one research, one-quarter of payroll users expressed concern about staying current on tax laws and regulations, 21% expressed concern about the time required to process payroll manually, and 16% expressed concern about tasks related to managing taxes, withholdings, and other benefits for employees in multiple locations.
Are you unsure if outsourcing payroll may benefit your business? Due to the fact that payroll and tax administration may be time-consuming and confusing — despite their critical nature — busy business owners are increasingly choosing to outsource these activities.
Here are some of the most often cited advantages of payroll services for small business, the areas of your organization where a provider may be able to assist, and how this method may make sense for your firm.
• Time that might be saved
Regardless of the number of workers, payroll processing requires time and attention to detail. This often comes at the expense of necessary time that might be spent on more critical company needs, such as revenue growth or customer service.
By outsourcing payroll to a trustworthy source, business owners get more time to concentrate on what really counts. They’ll often also choose alternatives accessible to optimize the amount of time saved during the pay period. Additional payroll-related duties, such as new hire reporting or benefits administration, may be added to the outsourced mix. Company owners can define how often they want to be alerted about payroll-related chores. If there are no anomalies or issues, payroll providers will usually only need to contact owners once every pay period to inform them that payroll has been properly executed.
• Payroll duties that are often time-consuming
Once a firm hires its first employee, payroll obligations will continue to be assigned on a pay period-by-pay period basis. As previously stated, the complexity of payroll processing needs a large daily and weekly time investment – time that cannot be substituted elsewhere. Whether you’re calculating payroll amounts, creating internal reports, preparing and submitting state and federal payroll taxes and returns, or just printing, signing, and distributing paychecks, the demands on your time might be significant.
Consider the time necessary for the following:
• Calculating payroll on a period-by-period basis
Each pay period, hours must be totalled, validated for correctness, and multiplied by the employee’s assigned pay rate. The appropriate tax amount must then be computed and deducted from the gross pay to arrive at a net amount.
Additional computations must be completed if the employee gets any benefits or has any other deductions, such as child support or retirement plan payments. Multiplying each of these calculations by the number of people in your organization demonstrates why computations alone may consume a considerable portion of your week.
• Paychecks or pay stubs are printed, signed, and distributed.
After calculating the compensation for each employee, the actual checks must be produced, signed, and distributed. Due to the likelihood that some workers may get direct deposits, such amounts must be checked and processed electronically, but pay stubs must still be made accessible to employees. Furthermore, these documents must be kept securely for tax and reporting reasons.
• Producing reports for internal and external purposes
After each payroll period, all workers’ pay, any benefits or other deductions deducted, and all payroll tax amounts must be meticulously documented for future accounting reasons.
Payroll reporting may be included in any fiscal year-end reports, depending on the size and structure of the organization, mainly if the business is publicly listed or actively seeking investors. Even though such statements are not required, many company owners use historical payroll data to forecast recruiting and staffing needs.
Payroll data is also required for tax reasons, including year-end income tax filing for businesses and quarterly and yearly payroll tax reporting. Organizing and delivering this data to an accounting expert for future reporting or delivery might add time to each quarter.
• Payroll tax and return preparation and submission to government authorities
Even when the payroll statistics are structured and recorded each quarter and at the conclusion of each fiscal year, new payroll tax obligations arise. Business owners or authorized administrators must meticulously calculate and submit a quarterly payroll tax form to demonstrate that the required amount of payroll tax was deducted. This document must then be sent to the IRS each quarter, along with the appropriate amount of withheld taxes.
Businesses must file a year-end payroll tax statement at the end of the year that confirms all quarterly numbers and calculates any leftover taxes payable. Companies, like individuals, must file an annual income tax return, and payroll amounts are deducted on these forms.
The poll’s respondents* reaffirm these sentiments: 54 percent of manual payroll users consider the ease and accuracy with which taxes are filed and paid as a very significant advantage of an outsourced service. When performed on a per-payroll period or monthly basis, a time/cost analysis may potentially reveal the benefits of outsourcing payroll.
• Expertise in payroll:
A professional payroll firm employs personnel who are well-versed in payroll processing. These professionals are experts in the complexity of payroll processing and taxes and regulatory compliance. They are trained to do and are included in their guaranteed service.
• Payroll processors with a good reputation contribute knowledge in the following areas:
• Understanding of 401(k) laws and how they relate to payroll deductions
• Updating W-9 forms and modifying tax deductions to ensure accuracy
• Managing employee withholdings, both voluntary and involuntary, and sending them to the appropriate government bodies or benefit programmes.
• Calculating and reporting payroll taxes on a quarterly and annual basis
• Preserving eligibility for tax benefits and avoiding tax liabilities
• Maintaining a record of employee benefit eligibility dates and processing enrolments.
• Managing payroll deductions and payments for FICA, Social Security, and Medicare
• Maintaining compliance with federal, state, and local tax laws by updating tax rules and modifying payroll statistics as necessary.
• Payroll professionals are also adept at validating correct data, identifying errors, and resolving them before they become a problem.
Choosing the right payroll service provider to manage payroll could give your business an advantage in the market.