Hiring a Payroll Services Vendor – Does it Make Sense For Your Business?
Outsourcing specific commercial tasks can enable you to free up resources and energy to focus on your core competencies. Payroll is an important function and in all likelihood it makes sense to outsource payroll administration rather than hire resources in-house and dedicate them solely to the function.
Payroll companies help you to organize your payroll, adhere to policies and procedures, and get employees paid on time. To stay on top of your tax obligations is the main reason for your business to consider using a payroll provider. You can locate accupaysystems that can do excellent payroll processing at very affordable rate.
Payroll administration permits attention to detail and even the smallest indiscretion can attract heavy penalties from the tax authority of your country. In the US, the IRS has a history of levying heavy fines on small businesses for even the smallest transgression.
Recently released statistics show that one out of every three small businesses is penalized in some way for not complying with tax laws.
If your company is large enough, you may choose to conduct payroll functions in-house but be prepared to hire at least a couple of workers dedicated to this function. You will also have to allocate resources to continuously train your payroll staff in use of accounting software and to keep up with the frequently shifting state and federal tax laws. Also if you are a growing company that is continuously adding new employees, teams and locations, managing payroll is going to be quite a challenge.
How Payroll Systems Work
A payroll service is an outside company that specializes in every aspect of the payroll process. The first such service in the United States, Automated Payrolls, was founded in 1949 and relied on primitive technology like electro-mechanical calculators and something called the Comptometer bookkeeping machine . Automated Payrolls grew to become Automated Data Processing (ADP), one of the largest business outsourcing services in the world.
A basic payroll service will collect wage and hour information from the employer and use that information to calculate gross wages, subtract all pertinent withholdings and deductions, print checks, make direct deposits and prepare all employment tax filings. The service will also mail out W-2 and 1099 forms and resolve any inquiries from the IRS or other government agency.
Some payroll services offer more comprehensive help. They can take over some of the responsibilities typically handled internally by human resources, like administrating a company’s retirement accounts and benefits programs. They can file new employee forms with the state and help comply with any court-ordered wage garnishment programs. Some payroll services even offer a free phone help line for any questions related to human resources or payroll.
The Internet has made payroll services even more convenient. In the past, an employer had to call the payroll service with information about wages and hours for the upcoming paychecks. Now the employer is provided with a Web-based payroll account that he can update 24/7. All he has to do is log on to the system, punch in the hours for the pay period and the data is updated in real time. Payroll services keep record of all payroll information and make all of this data available online through reports, payment histories and other features.
Pay-as-you-go payroll prices
A pay-as-you-go payroll service model is the perfect solution for any business that encounters huge peaks and troughs in the size of their labour force, affording all the benefits of a fully managed service without the need to tie yourself into a long-term contract.
Obviously this means that you will have to pay towards the upper end of the fully managed service scale with no discounts for more substantial numbers, as your provider will be seeking some kind of recompense for the absence of security that comes from guaranteed income. However, the flexibility provided by a pay-as-you-go model can be essential as staff and come and go.
If you own a construction business, for example, and need to expand your workforce by a third for a set number of months while a particular project is completed, this is a way of ensuring that you and your staff are legally covered in terms of payment throughout the duration of the work.
An alternative use of the pay-as-you-go model of payroll management is to cover a permanent in-house staff member who is unable to perform the task for a set period of time – a fixed recovery time from a bout of ill-health, for example, or maternity leave.
Your employees will still expect to be paid in a timely and accurate fashion during this period, and HMRC are not renowned for their patience and sympathy in dealing with financial inaccuracies caused by unforeseen personal circumstances.
How to process payroll with a payroll service:
Just like with the DIY option above, you need to have all your employees complete a Form W-4 and find or register for Employer Identification Numbers.
Step 1: Choose a full-service payroll provider. If you’re not sure how to do payroll yourself, use payroll software that reduces the risk of errors or fines. Many payroll processing services, like Square Payroll, handle your payroll taxes, filings, new hire reporting for you, and allow you to complete payroll online. Sign up takes minutes — so you can quickly start doing your own payroll the same day you sign up.
Step 2: Add your employees. You need to set up your employees before you process their payroll. Adding employees you’re paying for the first time is generally quicker; if you’re switching to a new payroll provider, then you also need to add your current employees’ year-to-date payroll information. Either way, you generally need to enter employee names, addresses, Social Security numbers, and tax withholding information. If you’re using Square Payroll and would like to pay employees using direct deposit, you can just enter your employees’ names and email addresses so they can enter their personal information themselves.
Step 3: Track hours worked and import them. The U.S. Department of Labor requires employers to keep track of wage records such as timecards for up to two years. Certain states may have longer retention requirements; be sure to check the specific requirements in your state. You can track time using your Square Point of Sale and import the timecards to payroll.
Step 4: Process your first payroll run. Click Send and you’re done!
Step 5: Keep track of your tax payments and filings. The IRS requires tax forms to be kept for three years. Certain states may have longer retention requirements; be sure to check the specific requirements in your state. With Square Payroll, you can find copies of your tax filings in your dashboard.
The Pros of Outsourced Payroll
“If you have one employee, get a payroll service” is advice financial expert Rhonda Abrams gave readers of “Inc.” magazine in 2010. As much as outsourcing this necessary aspect of running a business is tempting, it comes with risks. Before handing over the responsibility for the paychecks to an outside service, weigh the pros and cons
Pro: It’s a Time Saver
Outsourcing payroll saves a business time it would otherwise spend calculating pay and deductions and remitting checks to employees and taxation authorities. The printing costs of pay stubs might also be reduced. Some payroll companies offer a clock in/out function for employees, so you also save time calculating how many hours are owed each pay period. A company also provides services such as direct deposit and online pay stubs to further ease the payroll burden.
Pro: It Calculates Taxes Accurately
Small business owners know the deductions involved with employee payroll can be complicated, state and federal taxes among them. A payroll company often is better equipped to calculate these deductions accurately and consistently. The company also ensures taxes are paid on time. The IRS frequently penalizes business owners for errors in payroll-related taxes; one out of three is affected, according to “Inc.” magazine. The fines levied can cost more than the amount of the error.