Outsourcing Payroll Services: Advantages and Disadvantages

Advantages of Outsourcing

When a small business owner begins to wear too many hats at the same time, it’s time to consider the advantages of using payroll outsourcing companies!

Payroll processing is one of the most important challenges for any organization, and one that no small business owner can afford to go wrong on. Many areas of small companies (sales, marketing, computer and internet) are often involved with outsourcing, and payroll services are not  an exception.

Bigger companies have the advantage of hiring many accountants to manage their payroll services; however, small companies often survive with a few employees juggling their time between many duties. Most successful small businesses might have only a  single employee handling their payroll systems, in addition to other accounting or administrative work. Sometimes when  payroll services for small business are managed internally, the possibility of error goes up — because keeping up with payroll tax law is not easy. Those are a few reasons why small companies choose outsourcing payroll.

1. Cost Savings Advantages

When you outsource payroll services, you get to reap many cost saving benefits. These cost savings come from having less investment in human capital (fewer people on your payroll and your share of their payroll tax and employee benefit expenses) and business payroll software and computer/printer, and reduction in IT costs.

In other words, you save the time you would have spent on personally managing your small business payroll systems. Your time is valuable! Don’t waste it in areas where an expert can be hired.

2. Less Capital Investment

If you decide on outsourcing your payroll services at the onset of your small business or at the time of human resources (handling the employees) planning, you will probably need to invest less capital into your business. Payroll services outsourcing usually costs less as compared to managing it internally. This is especially true for a small business owner.

3. Ease and Flexibility

When you have a rapidly growing business, outsourcing payroll helps and solves a lot of problems. Outsourcing payroll services will provide you the ease and flexibility of operation and concentrating on your core business instead of having to worry about your small business payroll services.

Small business owners find it challenging to cope with the frequent payroll tax changes, making accurate direct deposits of federal payroll taxes on time, and filling out the IRS 941 form and IRS Form W-2. Plus, keeping track of contract labor for filing the Form 1099.

4. Ability to Track Cost

If you have been outsourcing payroll services, you already know precisely how much payroll processing costs you. This is often not the case when payroll services for small business  are managed internally. This ability to track your costs allows you to manage your business better.

Most successful small businesses are acknowledging this aspect of outsourcing payroll — indicative of the necessity of being in control of their operating expenses.


5. Better Payroll Services for Small Business

When you outsource payroll to payroll processing companies, they give you payroll solutions based on the best practices in the field. This knowledge is something that is almost impossible for you to replicate if you are a small business owner or haven’t been in the trade for decades, or don’t have a humungous budget to research and employ the best and the most useful payroll tactics  in the industry.

Disadvantages of Outsourcing

Apart from these numerous advantages, outsourcing payroll services does have a few downsides. For example, sometimes when a small business entrepreneur outsources small business payroll services, it becomes somewhat problematic to access the payroll figures and other employee data. This happens because your payroll services information resides on the server of a different company.

Moreover, in the case of a mistake in the payroll, such as in the payroll tax deductions or sick leave compensation, or employee benefits, or retirement plan deductions, it may not be possible to correct it as fast as an irate employee might want. (Quick resolve — give the employee a $20 cash gift right away to compensate for the problem.)

However, these problems do not arise frequently. And, when weighed against the advantages of outsourcing, the disadvantages seem negligible.

Sources: Internet