Outsourcing Payroll: Who Can You Trust to Handle It?
Handling payroll is a necessary part of doing business to which absolutely no business owner looks forward. It is a recurring headache in which mistakes are all but inevitable and always costly. Payroll requires capital to pay your employees, a knowledge of a complicated tax code, tons of paperwork, and the valuable time of a capable employee to handle the tedious, recurring task.
That said, payroll outsourcing is a tempting prospect. But is farming this service out to an independent contractor the best move for your business? Make sure you know the pros and cons before you pull the trigger.
Outsourcing payroll is tempting, but is it the right thing to do?
The Pros
First, the argument for outsourcing. You’ll save time by having an outside firm handle this task. They’re likely to have a better grasp on a portion of the tax code that is complicated and changes often. It will be automated; they will print your checks for you and report to the appropriate governmental and tax authorities on your behalf.
These are the selling points of the payroll processing industry. But before you take the bait, make sure the good isn’t outweighed by the potential bad.
Con: Mistakes That Aren’t Your Fault
If a company is inexperienced, overworked, unscrupulous, or isn’t thorough, they can build errors into your payroll report that you could have avoided. Your intimate knowledge of your business, your employees, and your financial situation is shared by no one but perhaps a few choice employees. A payroll service may be ignorant of the specifics of your industry – how tips work in the restaurant business, for example, or unionization issues – and embed mistakes that could have been avoided.
Con: Mistakes That Are Your Problem
Your payroll is your responsibility. If the company to whom you outsource fails to complete it, fails to complete it correctly, fails to pay taxes, fails to report taxes to the appropriate entity, makes errors, or pays or reports late or not at all, the responsibility falls squarely on your shoulders. Even if the government or tax agency goes after the company you hired, you will be targeted independently.
If You Want Something Done Right…
Payroll services are overhead: a recurring expense that you have to factor into your budget week after week, month after month, year after year. If your company has more than 20 employees, you probably need an independent, professional payroll service. If you don’t, chances are you can dedicate one or two long-term, trusted employees to take one day out of their week to handle it by themselves.
No matter who does your payroll, you are ultimately responsible for its outcome.
Payroll is tedious, time-consuming, and absolutely necessary. Flaws or shortfalls in payroll filing or capital can and does sink businesses. You may need to outsource it, but you also have a vested interest in keeping that particular part of your management – and the incredibly sensitive information that goes along with it – close to the chest.
Andrew Lisa is a freelance writer living in Los Angeles. He writes about small business administration and management.
