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6 Common Misconceptions about Outsourcing Payroll

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Your employees’ financial stability depends on your ability to complete payroll timely and accurately every pay period. If you’re spending hours and hours a week making sure this is done right, it might be time to consider outsourcing to a trusted provider.

Before beginning your research, however, take a look at these common misconceptions business owners have about outsourcing payroll.  

Handling payroll in-house is error-free and cost-effective.

If your small business has just a handful of employees, it might seem like running payroll in-house is the most logical and time-saving business move. But when you think about the tax regulations, legal considerations…not to mention the actual time it takes to facilitate the process, tackling payroll yourself might not be the best option.

Here are five of the more common errors made when processing payroll in-house (which, in turn, creates more costly headaches) -

1.  Not understanding overtime and other labor laws in their state

2.  Misclassifying employees (employee vs. independent contractor)

3.  Incorrect taxes withheld for employees (state/SUI/local setup)

4.  Late or incorrect deposits

5.  Not understanding pre-tax/post-tax earnings and deductions

But my business is too small to outsource payroll; plus I can’t afford it.

From one employee to 100, the employer still holds the responsibility of filing tax returns and sending payroll tax payments. This requires complete compliance around the ever-changing legislation updates and timing requirements for how payroll tax is calculated and paid. Not to mention, you’re also required to ensure you’re complying with all the federal, state and in many cases, local municipalities’ payroll tax laws.

There are also ways to get more flexible pricing out of your deal if outsourcing. And by freeing up the time it was once taking an employee to facilitate payroll, you can better allocate that resource to more revenue-generating tasks for your business.

I’m going to lose all control over my payroll functions.

If this is your mindset, you should consider changing the way you think about your potential provider; count on them as more of a partner than a business transaction. You can still write checks, etc. as you please, but you would just need to notify your vendor so it can be accounted for.  You also still have options when it comes to how to report information (email, spreadsheet, online payroll, etc.). You might also have the capability to quickly create custom reports.

In fact, our SVP of Sales Karen Cimorelli-Moor sees this relationship trend growing this year.

In this article from Business News Daily, she says “as we look to 2016, I think you will see small businesses engaging the firms they do business with to become more of a consultant than ever before. In our transparent world, we’ve moved beyond transactions and the lines are more blurred than ever…”

As long as your communications lines are clear, you won’t lose any control over the functions that matter to you most.

Online payroll processing is only good for larger businesses.

If you prefer a hands-on approach to running your payroll, chances are whatever provider you choose can find the best option for you. Doing your payroll online is not limited by your business size.

Setting this up is going to take forever and be extremely complicated.

Setting up your payroll service is not as crazy as you may think. As long as you have some key items handy (things like: year-to-date and quarterly payroll reports, copies of tax returns, employee information, a voided check from the payroll account and your business’s tax IDs), getting you enrolled into a new system shouldn’t be a hassle.

I can only switch payroll providers on January 1st.

Say you did decide to make the move to outsourcing payroll but you’re not loving the provider you chose. The good news is, payroll systems can be changed during any time of the year, and it’s becoming easier than ever. It is best practice, however, for you to leave adequate time to adjust to the transition. Switching at the beginning of a fiscal year or the start of a new quarter will help with keeping your financial records easy to follow.

Before making the leap to switch to outsourced payroll, there are some things you should consider. Download our free eBook to help guide you towards making the best decision for your business.  

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