Payroll concerns the company’s employees and the compensation they are owed for a set period along with tax withholding and deductions. The payroll process can be rather complicated with aspects such as employee information and classification, salaries and wages, employee benefits, payroll taxes and withholdings, and a company’s financial records. You can process payroll manually, use software to automate it, or outsource it to an accountant or a payroll service provider.
Forward-thinking entrepreneurs always prefer to be efficient by adopting routine, repeatable business processes, which, in this case, means outsourcing payroll to an expert.
Why should you consider outsourcing your payroll?
Outsourcing eliminates any opportunity for manual calculation errors that may result in hefty penalties for your business. In 2020, the IRS imposed employer penalties worth almost $6B to businesses. The outsourced team will have experts that can ensure your payroll process is error-free. Although in-house payroll can ensure data security, there are multiple risks involved like incorrect deductions, noncompliance, miscalculations. The benefits of outsourcing your payroll are considerable. We list a few:
Expertise
Most payroll providers have a deep understanding of the payroll process and ensure your payroll is run in a timely and efficient manner. Skilled and reliable payroll providers will give you the best of HR and payroll. Outsourced dedicated payroll and tax experts will be up to date with newer regulatory changes and best payroll practices.
Accessibility
Expert payroll providers will ensure all your data is safely stored in the cloud. A cloud-based payroll system is easily accessible to anyone from anywhere. So, if your HR is remote and your accounting and tax partners are in different locations, you don’t have to worry. Real-time data can be available anywhere, anytime.
Compliance
Your payroll providers should also be acquainted with your accounting team. These experts will continuously track and be aware of regulatory updates. So, if the government bodies come up with a new payroll-related rule, you know you will be covered; Your accounting and tax advisory team can oversee and ensure everything is compliant.
How to ensure a smooth payroll process?
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Get the right level of service from your service provider. Whether you want automated payroll, employee benefits, or talent management, a payroll provider should always grant you full control.
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Ensure all employee data is accurate and updated when shared with your payroll provider. Any change in the details may affect deductions and compliance.
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If it is time for you to consider an ERP for your business, consider adding payroll and HR within the same software. It will ensure your entire business operations are in one place.
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The most common (and costly) mistake small businesses make is misclassifying their employees. Integrate your contractors and freelance records with your employee payroll to ensure proper compliance.
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Have a robust review process to evade errors. Whether it is being updated about the employees and their locations or updating the payroll providers on any changes, make sure to have a senior oversight in the process.
Considering PEO – the big question
An alternative to standard payroll outsourcing is working with a PEO. PEOs or Professional Employer Organizations collaborate with you on a co-employment model. These are firms to which you can outsource most of your HR functions, e.g. payroll, healthcare, employee benefits, compensation, and so on. In simple terms, they share your employee’s liabilities and become the professional employer of record for your workforce.
Three reasons why you would consider a PEO are –
Reduce risks – You can easily avoid risks that may arise due to incorrect reporting of employees, erroneous payroll taxes (especially regulating the different laws for each state), 401(K) retirement benefits, employee-related claims, and compensation. They can provide cost-effective, profitable employee benefits without you having to take on the burden of related regulatory compliance.
Maximize talent – A PEO can not just manage your employees, but also help recruit new talent for you. They can go a step ahead and help you train the employees on leadership and manage the employee performance goals of your organization.
Increase efficiency – Not only economical, but a PEO is also time-effective. With your payroll pains and employee liabilities taken care of, you will have more time to focus on your startup’s growth. Simultaneously, a PEO takes care of multiple HR and payroll tasks, including keeping an eye on any regulatory update or your employee activity that may affect payroll and compensation.
Although working with a PEO does not mean that you lose control of your employees’ day-to-day operations, but it is always good to be thorough about your service agreement with the PEO. Calculate the risks and returns before making the decision.