Small Business White Papers
Why It Pays to Outsource Your Payroll
There's more to managing small business payroll than writing checks and handing them out to employees on time. You need to keep accurate records, calculate and pay payroll taxes, and communicate effectively with employees. Many small business owners are finding that they can simplify the process by using an outsourced payroll provider to manage the entire process cost-effectively and efficiently.
Outsourcing your payroll can provide your small business with a number of important benefits:
Using an outsourced payroll solution is typically more efficient for a small business than processing payroll internally. Leaving payroll to experts frees up hours that you can devote to other important parts of your business. Whether it is your time, staff time, or a combination, chances are the hours could be better spent winning more business, improving customer service, fine-tuning business operations or launching a new product line. Among the areas where outsourcing will save time are:
Cutting and distributing paychecks
Calculating and paying withholding and employment taxes
Preparing and distributing W-2s and 1099s at year-end
Handling employee payroll inquiries
Many business owners underestimate the cost of processing payroll internally by failing to account for all hours spent and resources allocated to pay employees and maintain payroll paperwork. A thorough cost assessment usually proves that a small business saves money by outsourcing the processing, tracking and filing of payroll documents. To assess your own internal payroll costs, consider:
How much the time spent is actually worth: consider the cost of your time and the time of anyone who processes or "touches" payroll. Often, many people in a small company are involved in the various parts of payroll processing.
What savings would outsourcing provide: since an outside provider can handle all the responsibilities involved in managing payroll and answering employee questions, a small business can often eliminate or reallocate an internal payroll resource.
Calculating federal, state, and local employment taxes and filing payroll-related tax paperwork can be more than just a hassle. If it's done incorrectly, your small business may face penalties and even interest on money owed since the mistake was made. In fact, it is estimated that one in three small businesses receive a tax penalty costing over $800 each year. Outsourcing payroll does away with the risk of many of these costs and hassles because:
An outsourced payroll provider calculates payroll taxes, based on its expertise and close tracking of regulation changes
Monthly or quarterly employment tax reports are managed by the payroll service, ensuring they are submitted correctly and on time
Payroll providers may assume penalties that come as a result of incorrect tax calculations
End-of-year paperwork — such as W-2s and 1099s — are handled directly by the payroll provider, so they are sent out on time
Find out how ADP can help small businesses with their payroll & HR needs.
Entrepreneur Article: The Payoff