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Outsourcing Your Payroll? Follow These 5 Tips.

Outsourcing Your Payroll? Follow These 5 Tips.

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Starting a business and showing profits is hard enough. Then throw in the fact that you’ll have employees and payroll and the overwhelming amount of work could be too much to bear. The good news is that there’s help out there in the form of payroll outsourcing services.

Payroll is one of the most time-consuming responsibilities put on a business, and if you are thinking of starting an LLC, or recently have, there are few things you want to consider.

For starters, what could you accomplish with an extra 11 hours a week? Probably a lot, right? A survey done by Paychex showed that, on average, payroll responsibilities sucked up 11 hours every week. If you consider that there are 52 weeks in a year and each week is made up of a 40-hour workweek, that means you would spend 572 hours doing payroll (that’s roughly 14 weeks each year).

When you’re just starting out, time is your greatest ally, as well as your greatest foe. Spending too much time doing administrative work can take time away from building and growing your business. Should you have the money to pay a company to manage your payroll on your behalf, it can free up a lot of time for you to work on other areas of your business.

Here are some tips on what to look for in payroll outsourcing services.

What Does a Payroll Outsourcing Service Do?

A payroll outsourcing company can handle a variety of responsibilities for your company. These may include:

  • Running your company’s payroll and accurately accounting for taxes (such as federal, state and local taxes) and withholdings (such as social security)
  • Sending out checks to your employees on time or setting employees up with direct deposit
  • Preparing and issuing W-2s
  • Filing all needed paperwork to the government on your behalf and the behalf of your employees
  • Making payments to vendors on your behalf
  • Managing your employee’s benefits (such as 401(k))
  • Providing payroll reports for your company

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5 Tips for Hiring the Right Payroll Outsourcing Service

Here are five payroll outsourcing tips to help you make the best decision for you and your business. Not all payroll companies are the same, so it would be wise to figure out your exact needs now and in the future, as you grow your business and team.

1. Make Sure the Company Has a Low Error Rate

While everyone makes mistakes, you want to keep them to a minimum when it comes to payroll. There’s nothing worse than an employee getting shorted money in their paycheck, or finding out your company had an error in calculating payroll taxes when the IRS comes knocking.

It’s been found that 40 percent of small businesses are penalized by the IRS for incorrect payroll filings, with the average penalty being $845. And 54 percent of the workforce is affected by payroll problems, leading a whole 49 percent to say they would look for a new job after just two paycheck issues.

The bottom line is that payroll errors are serious — they can cost you money and employees. Make sure the company you choose has a good track record and does not make mistakes. If they are a reliable company, they should have systems in place to prevent such errors from happening. When vetting your potential choices, read online reviews and see if there any customer issues that repeatedly come up. Ask the company what their processes are to handle mistakes and what they’ve done in the past to correct and prevent them.

You can also ask other business owners if they have any recommendations based on payroll outsourcing companies they work with or have worked with in the past.

2. Look for a Payroll Company That Handles Your Business Type

In your search for payroll outsourcing, you want a company that works specifically with businesses like yours. For instance, if you are a small business that will only employ a handful of employees, yet you are in talks with a payroll company that services large corporations with hundreds of employees, it may not be the best fit for you.

Those large companies will get priority over your needs since they bring in the payroll company more money than a small startup. Look for payroll outsourcing companies that fit your needs and business structure.

Also consider the industry you are in. If the service provider has other clients in your industry, this can be a benefit for you. It may mean the company has a good understanding of the specifics of your niche, and they may have better-targeted advice and service options for your company.

woman working on payroll at a computer

3. Find a Payroll Outsourcing Service That Can Grow with Your Business

Businesses don’t start day one of their entrepreneurial journey with 500 employees worldwide, but that’s not to say it can’t grow into that.

In your search for payroll outsourcing, ask companies what services they offer that you can use as your business grows. If you are starting out with a few employees and none of them will be full time (meaning you don’t need to provide benefits), then you won’t have a laundry list of needs that the payroll company needs to handle.

However, as you grow and your business’s needs grow, full-time employees may be a necessity, and at that point, you would need the payroll company to handle various benefits. Ensure the company you choose offers such services if you know you will need them down the road. While changing payroll companies isn’t generally difficult, it’s simply easier to remain with a company that knows you and can grow with you.

4. Consider Cost and Contract Length

Only you know what your budget looks like and how much money you can dedicate to payroll outsourcing. Figure out what your constraints are and make sure to ask about cost per employee. Some companies have a flat fee regardless of how many employees you have, while others offer a break per employee once you hit a certain number of workers. This is good information to have in your back pocket to better understand the expenses you’ll incur during your growth.

Something else to ask about is the duration of the contract. How long is it for? Some companies will offer a month-to-month contract, an annual contract or potentially even a multi-year contract to lock you in.

If you only want to test things out, maybe a month-to-month contract is the way to go. If you want to save some money in the long-term, an annual or multi-year contract may be your best option.

5. Confirm You Will Have a Dedicated Point of Contact to Speak With

How many times have you purchased something and needed to get in touch with the company about a question or issue? How many times did you reach out and couldn’t get someone on the phone or couldn’t get an email response back?

Every minute spent trying to resolve an issue with a company that won’t pick up the phone is a minute you’ll never get back to work on your business. When it comes to payroll issues, you need prompt help and answers. Ask the company right out of the gate whether or not they will have someone dedicated to your business with a direct line should you need something.

If the payroll outsourcing service cannot provide you with a direct line of communication with someone on their team, think about looking elsewhere as you may be setting yourself up for some rough waters ahead.

Remember, the whole reason you are looking for a payroll outsourcing company is to take work off of your plate and simplify your processes to allow you to focus on growing your business. The last thing you need is to be calling and emailing a company you hired, only to get no response back from them.

As you’re beginning the process of starting and growing your business, have you considered outsourcing your business accounting and bookkeeping as well? Incfile offers complete business accounting and bookkeeping at a low monthly cost to help make running your business a breeze and free up valuable time to help you ramp up sales and operations. Consider adding such a service to your business today.