Once your business grows to have at least one employee, you are responsible for calculating, managing, and delivering payroll. Since this can be complex for business owners, many choose a third-party provider to handle some or all payroll responsibilities. It can be tough to determine whether payroll outsourcing is right for your business, but many businesses learn that the benefits of automating these tasks outweigh any perceived disadvantages.

The following considerations can help you sort through the details:

There are several factors that contribute to your payroll outsourcing decision. On the one hand, you may feel that your small business cant absorb the added cost of paying someone else to manage payroll. On the other hand, taking theDIY payrollapproach can be time-consuming and expose your company to unnecessary risks.

In a recentPaychex survey, HR professionals reported spending on average 11 hours per week processing payroll, with an additional 4.9 hours spent processing employee benefits, and another 1.8 hours managing time off. Combined, this amounts to over 17 hours spent each week on tasks that can largely be automated with the help of an outsidepayroll services provider. Assuming a 40-hour work week and anannual salary of approximately $98,000, this equates to over $41,000 paid to an in-house employee just to manage payroll and payroll-related tasks.

For small businesses that may not have a dedicated employee for completing these tasks, the numbers are even more staggering. In a recent study conducted by The Electronic Transactions Association,small business owners valued their time at $170 per hour. Considering the business owner is principally responsible for operations, generating new business, generating financing, and myriad other tasks, this valuation can represent the owners value to the business. In organizations where the owner is investing time in payroll, this corresponds to an annual outlay of $150,280 per year.

The time value isnt the only cost of keeping payroll in-house, however. Approximately33 percent of all employers make payroll errors, which can cost money in the form of fines, extra taxes, overpayments to employees, and additional administrative costs for finding and correcting mistakes. While these costs can vary widely across different industries, they should be a consideration factor for employers.

While payroll software is a financial investment, its important to weigh that factor against the amount of time (and money) spent when processing payroll on your own. Dont forget that errors from doing payroll manually can also cost you money or time. For instance, calculating or filing taxes incorrectly can result in fines or penalties. Each year, roughly40 percent of small business ownersincur an average of $845 in IRS penalties. To avoid paying more than you owe, payroll software can help ensure you dont miss key tax-filing deadlines and that your company withholds and reports the correct amount of taxes.

If you decide payroll outsourcing may be a more efficient path for your small business, the costs should be very straightforward. Choose a reputable payroll provider that clearly stipulates the monthly costs up front, so you can plan for payroll expenses each month. Reputable payroll providers will also offer various add-on packages, so you only need to pay for the services relevant to your organization.

Many companies are embracing ablended workforce, which has further changed the payroll process. As a business grows or becomes more complex such as taking on freelancers or paying employees overtime the odds of making errors can increase. A quality payroll system can help you handle various classifications of workers, even if you have full-time and part-time employees, independent contractors, as well as exempt and non-exempt or employees. It can also help you adhere to federal, state, and local rules around overtime pay as well as tax filing requirements.

Todays regulatory environment, tax laws, and employment situations are extremely diverse. When shopping for a payroll system, look for software designed specifically for a small business. If you expect your business will eventually grow, dont forget to ask your payroll administrator if the software can scale with you.

Paychex offerspayroll solutionsto fit the needs of any size business, with features that make it efficient to manage all aspects of the payroll process.

Worried about payroll? HR? Compliance Issues? We can help.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.

Nonprofit payroll involves many specific laws and tax regulations. Find out more about nonprofit payroll, and if outsourcing the task could benefit your business.

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