One of the most important aspects of running a business is managing payroll—from the minute your first employee (even you!) starts working, you need a payroll system.
But small businesses often lack the adequate resources, time, and money to handle payroll in-house. You need to spend all your time doing what you do best and keep customers happy. You don’t have time to spend hours on payroll, and most small businesses can’t afford a payroll specialist on staff.
On top of that, payroll is inherently difficult and tedious. It’s not just about ensuring everyone gets the salary they’re expecting on time. There are also various government taxes—federal, state and local—to pay as well. Documents must be filed on time and all your regulatory boxes need ticking.
All of these scenarios make the case for small businesses to outsource payroll. Unfortunately, there’s a distinct lack of small business focused payroll solutions on the market. So, what are your options?
Are traditional payroll companies suitable for small businesses?
Payroll is, on the surface, a competitive space. ADP is one of the largest providers, alongside the likes of Ceridian, Paychex, and Intuit. For small businesses, the problem is that these legacy companies usually combine the high retainer or hourly rates of consultancies with technology better suited to larger enterprises.
Along with clunky, hard-to-use systems, this technology is also expensive and has a ton of hidden fees. There’s too much nickel-and-diming after sign up, and most of these companies aren’t known for having great customer service, either. They simply aren’t equipped to serve the needs of small businesses.
On the other hand, we’re seeing new-school payroll software coming into the market, tailored to making the process as intuitive, easy, and fun as possible for small businesses.
With that in mind, let’s take a look at outsourcing payroll instead of doing it yourself.
How to outsource your payroll
Step one: Determine your needs
Before picking a payroll provider, you need to understand what you need them to do. Do you have staff or contractors? How do you determine the difference? Do you need payroll to plug into your accounting software? What taxes do you need to pay? Do you pay out bonuses or expenses?
Once you have a handle on your payroll needs, then start doing your homework.
Step two: Do your research
It starts with deciding what kind of outsourced payroll provider you want to use for your company, and a lot of that depends on the size of your company.
Mid- and large-sized companies are best suited to choose payroll companies like ADP, Ceridian, Paychex or Intuit. These larger payroll providers have systems that are tailored to fit the needs of enterprise clients, as they typically provide a solution that covers all aspects of HR, benefits, and payroll.
Small businesses, on the other hand, have a myriad of choices when it comes to outsourcing their payroll.
- Local payroll firms
- Online payroll SaaS companies—e.g. Wagepoint, Wave, ZenPayroll, and so on.
- Larger companies like the ones mentioned above
There are pros and cons with each of these choices, but it all boils down to what kind of a solution is right for your business.
The payroll solutions offered by larger companies may not be suited to your needs as a small business. Using an accountant to manage your payroll is a good option because you have a person in-house keeping an eye on all your remittances and reporting for you, but the costs can add up if your accountant is charging you for each line item separately.
SaaS companies provide an interesting solution because you more often than not pay on a subscription model, usually for what you use, and it can save you a lot in both time and money.
Now that you have a better understanding of what is out there in terms of options, you should start by shortlisting the companies. Once you have this shortlist, which should come with pros, cons, and prices, reach out and make contact.
Step three: Make a connection
Having any outside firm looking after payroll is like sending your nicest suit or dress to be dry-cleaned. You need to be sure that this item will come back in one piece, handled with care.
Ask questions. Get a sense as to whether a company is a good fit for you. Are they nice people to do business with? That’s the question everyone asks, really, with any service provider. You’ll be dealing with these people every month, so it helps if you get along.
Is outsourcing the answer?
Really the question should be, is outsourcing payroll right for you? That’s up to you. Unless you have a dedicated payroll staffer or consultant, or simply enjoy doing payroll, it can be a big, expensive headache, which if done wrong could result in Internal Revenue Service (IRS) fines, taxes, and other costs.
Providing you are comfortable outsourcing this function and can find a firm that you want to work with, then this could be the easiest way to take this burden off your shoulders. The comfort in knowing the government is getting its taxes and your employees are getting their paychecks on time in priceless.
Do you use one of the services mentioned above to handle your payroll? Have another suggestion for fellow entrepreneurs? Share with us in the comments below.