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Why Outsourcing Payroll may be the Best Solution for Your Business

Payroll growth is often used as a key metric of a business's health. Adding new hires means increasing production or services, which translates to more revenue. It can also mean increasing operational costs, which can eat into profits.

Businesses with ambitions of getting to the next level must make important decisions about how to best manage their cash flow and allocate their resources optimally. But simply cutting costs doesn't necessarily add value to the business and could even make it less productive and profitable.

Is In-House Payroll Processing an Effective Use of Time, Money, and Resources?

Typically, businesses start out using an in-house staff person to handle their books, including their payroll. Even for a business with few employees, the process of data entry, calculating payroll taxes, writing, and distributing checks is an operational cost that only increases as the business grows.

In short, managing payroll is an ongoing process that can waste time and resources when businesses need to focus on critical aspects that contribute directly to their growth.

As a business expands, the owners must address whether to keep payroll services in-house or outsource to a service provider. There are pros and cons for either solution that must be weighed. In many cases, based on the business's situation the boss in determines which way to go. For many of the reasons listed below, outsourcing payroll usually wins out.

How Does a Payroll Service Work?

The best payroll services are essentially one-stop shops that handle all payroll functions, from onboarding hires to processing terminations and everything in between.

Their services include:

  • Filing tax forms
  • Writing and distributing paychecks or processing electronic deposits
  • Ensuring payroll taxes are deposited on a timely basis
  • Preparing quarterly and annual payroll-related tax documents and submitting them to the IRS by March 15
  • Handling workman's comp claims
  • Maintaining current payroll records, including updated withholdings
  • Providing payroll expense reports

Of course, all these time- and resource-saving services come at a cost. Businesses pay for payroll services based on the number of employees or the total payroll processed each week or month, and some providers bill on an a la carte basis for their services. In other words, businesses only pay for the services they use.

Why Use a Payroll Processing Service?

Growing businesses can realize several immediate benefits from using a payroll service, including:

Reduce the need for specialized skills: Payroll processing requires specific skills and experience that most businesses don't have. Finding and hiring the right payroll specialist can be expensive and time-consuming, and having to replace one can be disruptive to the business's operations.

Keep the business out of trouble: Processing payroll in-house can be fraught with problems. Errors and penalties can be costly. Payroll services are responsible for avoiding errors, omissions, and late filings, with the expertise to adhere to a myriad of IRS and state requirements.

Improve cash flow: Payroll services can set up and manage direct deposits with your bank, enabling the business to better manage cash flow.

Minimize administrative burden: Hiring a payroll service reduces the time and resources required to fulfill payroll functions, freeing your staff for more productive responsibilities.

Reduce costs: After crunching the numbers, most businesses find they save money by eliminating the need to hire staff and pay benefits such as health insurance, sick days, and vacation time.

How to Determine if Outsourcing Payroll is Right for You

In most cases, a simple cost-benefit analysis will reveal if outsourcing payroll makes sense.

Calculate all payroll management costs: Total the salary plus benefits of in-house staff who work on payroll (including any time you spend in the process). Divide total salary costs by the total number of hours spent on payroll.

Determine total costs of outsourcing payroll: Get three or four proposals from payroll service providers to compare services and costs.

Crunch the numbers: When comparing costs of in-house payroll versus outsourcing, don't neglect the "cost" of your stress, frustration, and time worrying about the accuracy and timeliness of your payroll process.

For most businesses, deciding to keep payroll in-house or outsource is a business decision focusing on the best use of time, money, and resources to further their growth ambitions.

An excellent place to start your decision-making process is with your business bank, which already knows you and your business. If your bank offers payroll services, keeping all your financial activities under one roof can be advantageous. We invite you to explore Community Bank's online payroll service, which can make it easy to track your account balances, monitor payroll outflows, and integrate all your banking functions.


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