Choosing which business processes to outsource requires extensive deliberation and shouldn’t be taken lightly. When considering outsourcing your payroll, you should think about which strategies can be easily standardized. You should also understand what to look for in an outsourced accounting firm.
Outsourcing your payroll is one of the most advisable areas to outsource because it is essential to the functioning of your business, but it can quickly drain productivity. Your employees should focus on core business principles such as market outreach, sales growth, and customer relationship management.
This article discusses the reasons why outsourcing your payroll is an advisable choice for small businesses. Continue reading to learn more about what payroll is and how outsourcing can improve your business’s efficiency and productivity.
What Is Payroll Outsourcing?
Most businesses have to focus on multiple sectors and functions. Some are industry-specific, while others are universal, no matter your company’s industry. Payroll is one of the business sectors that every company has to manage.
Payroll includes any process carried out either in-house or from a third party. Payroll outsourcing is one of the most common outsourcing procedures because it is both time-consuming and somewhat standardized.
Accounting firms can perform payroll just as well as specialist payroll companies. You can also use a professional employer organization (PEO), which takes over all employer obligations, not just payroll.
What Payroll Functions Can You Outsource?
Payroll isn’t an isolated activity. You can perform these activities at once and they generally entail the following functions:
Employee payroll account setup: Processing for all of your employees’ information in payroll.
Payment method set up: This process establishes the company’s preferred payment method, indicating whether they need direct deposits, paychecks, or both.
Payroll and income tax withholdings
Remitting payroll taxes to the tax department: Employees are still typically liable for required payments, even while outsourcing this task.
Managing applicable employee deductions: Some of the deductions include health insurance and workers’ compensation.
What Are Some Common Time-Consuming Payroll Responsibilities?
The moment your company hires its first employee, payroll responsibilities start to accumulate. To commit to payroll on a daily or weekly basis, you have to devote time and effort. While many of the tasks associated with payroll are mundane, they still require time that’s better spent on your core business operations.
Whether you have to calculate payroll amounts, generate in-house reports, or prepare tax information, payroll takes up valuable company time that you can’t afford to lose.
Calculating Payroll Each Time Period
You have to total your employees’ hours, verify them for accuracy, and multiply them by their pay rates every pay period. After calculating payroll, you have to determine the taxes to deduct from your employees’ gross pay.
If your employees have additional benefits or deductions, you need to make further deductions. Even if you have a small number of employees at your organization, you can see how much time you can spend preparing these documents.
Printing, Signing, Distributing Paychecks or Pay Stubs
After calculating your employees’ pay, you must print, sign, and distribute your employee checks. Some employees will have direct deposits, and these checks must be verified and processed electronically. These records also have to be securely maintained for tax and reporting purposes.
Generating Reports for In-House and Accountant Use
Monthly and quarterly reports include the amount paid to employees, benefits or miscellaneous deductions withheld, and payroll tax amounts. Depending on your business’s size and structure, you can include fiscal year-end reports, especially if your business looks to invest or attract investors.
Payroll figures are necessary for tax purposes and you can use them for both quarterly and annual tax reporting. Organizing this information is essential and accessible for future reporting.
Preparing and Remitting Payroll Taxes and Returns to Government Agencies
After organizing and recording your payroll tax responsibilities each quarter and at the end of the year, business owners must calculate and complete quarterly payroll tax forms to prove they withheld the proper tax amount. You have to submit a year-end payroll tax statement that verifies the quarterly figures at the end of the year. All of these documents take considerable time and resources.
Why You Should Outsource Your Payroll
It Mitigates Payroll Mistakes
Having to juggle multiple responsibilities leads to mistakes. When you outsource payroll operations, you don’t have to worry about something slipping through the cracks because you have resources focusing on the correct recording and organizing of your payroll records.
It Allows Your Employees to Focus on Core Business Principles
As a small business owner, you have a slew of things to worry about. Payroll is an administrative necessity, but it shouldn’t require substantial company resources, especially the CEO’s time and focus. When running your business, you need to focus on your core business principles. Customer relationships, product development, and market capitalization require your care and attention.
Outsourcing your payroll lets you focus on those business sectors while someone else ensures your administrative duties are covered while you focus on business development.
It Reduces Costs and Risks
Outsourcing your payroll can save costs and risks because businesses easily overpay in-house employees. You don’t need to pay in-house employees a yearly salary to generate reports and organize your tax information. When you outsource your payroll, you access scalable employees who can perform duties as you need them.
Conclusion- Why Should Companies Outsource Their Payroll?
Outsourcing your payroll enables you to focus on expanding your business while ensuring your administrative responsibilities don’t get in the way. Outsourced accounting firms are an easy way to fulfill your tax obligations and payroll operations while continuing to focus on aspects such as customer service, infrastructure, and business processes.
These services reduce the time you spend compiling reports, submitting records to the IRS, and performing mundane calculations such as payroll. They mitigate risks and payroll mistakes and lets your employees concentrate on your core principles.