Outsourcing Payroll

by mark.shead on December 14, 2006

With all the taxes and paperwork involved in dealing with your own payroll, there is a lot to keep track of. The government requires that you deduct certain taxes from your employee’s paychecks and send it to them along with your portion of the taxes. Most accounting packages can help you do this, but it still requires a lot of paper work and filing with the government.

For many businesses, the amount of time required to understand the payroll process isn’t really worth it. If payroll is going to detract you from working on things that actually help your business make money, you should probably consider using an outside service to process payroll.

Many local accounting firms can help handle processing your payroll, but there are also some really good firms that handle the entire transaction over the internet. Here are some things you should look for when evaluating payroll companies:

  1. Direct Deposit – By directly depositing the money into your employees bank account, you save yourself the trouble of working with the paper, waiting for things in the mail, etc.
  2. Bank Transfer – You want to find a company that can directly take the money out of your checking account to pay employees and taxes. Otherwise you’ll have to be writing and mailing checks.
  3. Login for employees – If the company offers an employee login, this can save you time because employees can check their payment details themselves.
  4. Import for Accounting System – You definitely want to use a company that lets you import payroll information into your accounting system. This helps insure that everything is accurate and saves you a lot of time over entering in each thing manually.
  5. Government Filing – Most payroll companies should handle filing the paperwork with the government. Most of the time they are setup to make these filing electronically.
  6. Experience – One of the big advantages of going with a payroll company is to minimize any problems with the IRS. You want to work with a company that has enough experience to keep you out of trouble. This doesn’t mean you shouldn’t use a smaller firm, but make sure they know what they are doing.

When you consider all of the paperwork involved in processing payroll, having another company do it can be a good deal if you don’t have the expertise yourself. Most charge based on the number of people and the number of times, you have to do payroll each month. Depending on what company you are using, here are a few things that will help minimize the amount you pay for the service:

  1. Contract – Much of the expense to the payroll company is in getting everything setup initially. Once they have you setup in their system, most of the process is automated. You may be able to get a better deal if you signup for a year long contract or some other period of time.
  2. Accounting Software Deals – Sometimes the company that provides your accounting software will have a special deal with a payroll company. Sometimes this will result in a lower cost for the payroll service, or free accounting software updates when you are using the payroll service. It is worth calling your accounting software company and asking if they have any special arrangements with payroll companies.
  3. Fewer Payrolls – Depending on your employees, you may be able to save money by going to a monthly payroll instead of every two weeks. This is especially good if you are just paying yourself and your spouse.
  4. Direct Deposit – Most payroll companies charge extra to mail a check, so if you can put all of your employees on direct deposit, it will probably reduce the cost of running payroll.
  5. Shop Around – Make sure you compare the different services. Be aware that the offerings from company to company can vary significantly. For example, a local accounting firm might charge more to do your payroll, but may give you free advice once you are their client.

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