When you think of payroll you probably associate it with issuing paychecks. While this is an important part of payroll, payroll is also responsible filing and withholding taxes and handling paycheck deductions like benefits and garnishments.
Payroll is an extremely important part of a business for legal and financial reasons. It is the sum or total of all compensation that a business must pay to its employees for a set period of time or on a given date, which includes salaries, wages, deductions, bonus, and net pay.
Besides compensating employees, payroll also involves the taxes that employees are required to pay, such as Withholding taxes. These are taxes that employers must withhold from the wages of every employee. Income tax withholding's are assigned by the federal, state, and local governments.
Employees and employers are required to also pay payroll taxes like Social Security and Medicare. Another required payroll tax would be unemployment taxes to compensate employees who have lost their job.
Payroll is one of the most important financial components of a business because it can have a serious impact on the net income of an organization. Additionally, payroll is subjected to several laws and regulations. Because of the legal, and even ethical, factors involving payroll it’s important that a business keeps a precise record of its payroll.
You will need to decide which type of payroll system you would like to set up. Typically, you have four (4) types to choose from:
This keeps payroll in your hands, but is extremely time-consuming.
This gives you the ability to quickly pay employees and manage taxes, but you’ll need to use the software properly.
The main benefit is that an accountant is familiar with payroll responsibilities, but this gives up control and can be costly.
This can alleviate some of the workload, such as tax deposits and filings, but it can be expensive and you’re putting your payroll in someone else’s hands.
It’s not uncommon for businesses to outsource payroll functions. Thanks to technological advances, payroll is becoming increasingly easier to conduct internally. To help you make this decision, here are the benefits of keeping payroll in-house instead of outsourcing this function.
Whether you hire someone on your staff to handle and manage payroll or you’re using software to do payroll yourself, keeping payroll internally has the following benefits:
You have immediate access to your financial information whenever you need it as opposed to asking someone else to retrieve this data.
For small business owners, it may be cheaper to conduct payroll themselves or hire someone part-time instead of outsourcing payroll.
You may already be the person issuing checks and maybe someone has already been keeping track of employee hours or filing the proper tax forms. Why would you pay someone else to the work that you’re already doing yourself?
For larger businesses or entities, they can easily sustain a payroll division. This may also be the case with small business owners who opt to outsource their payroll for the following reasons:
Payroll mistakes happen frequently and business may not be aware of tax codes. Payroll experts are aware of all the tax codes and are up-to-date on any changes, they can also easily correct any errors.
Business owners, large or small, may not have the time to devote to handling payroll themselves. Outsourcing payroll allows them to stay focused on running their business.
Many small business owners have reported that they spend between $100-$500 per month on an outsourced payroll company. In the long-term, this could be more affordable than paying a monthly fee for a payroll software, hiring someone to coordinate payroll, or the added concern of learning all of the varied taxes and rules involved with payroll.
There are pros and cons for both keeping payroll in-house or outsourcing it to another company. When deciding to figure out which option you should settle on, make sure that you consider what works best for your business. How many employees do you have? Do you have multiple locations? What is your business structure? Do you offer benefits?
You also need to think about the costs. Spending $1,500 for payroll software is extremely pricey for a small business owner who may be able to outsource their payroll at a better rate. Plus, you should also investigate if there are any additional fees that you’re not aware?
If you’re still uncertain, select a payroll software provider and give it a trial. If the service satisfies your needs, then keep using it for your payroll moving forward. If it doesn’t work out for, you may want to investigate other options.