Is it better to outsource payroll or use an in-house method to pay employees?
Every business does not have to outsource their payroll. Sometimes it makes good business sense not to make any changes and keep payroll in-house. I often advise small businesses to stay put with their current in-house method. I usually make this recommendation when businesses have less than twenty employees. Some companies allow their office manager, staff accountant or comptroller to handle payroll processing as a function of their job description. If little time is spent on payroll and it does not compete with other job duties, it makes sense to have an employee or owner take care of payroll using an in-house method.
Perhaps you are debating between outsourcing payroll to the third party or using an in-house method to process payroll in the near future. Before making a decision, you probably want to consider the responsibilities the employee or owner has in addition to payroll processing. If the owner or employee of a company is simultaneously placed in a role that generates revenue for a business, it may not be the best ideal to commingle with payroll. If you manage multiple projects simultaneously or oversee employees who generate revenue for the company, it wouldn’t be the greatest idea to allocate time to tasks that interfere with achieving company objectives either.
In fact, you should never ask revenue-generating members of a company to focus on administrative tasks. Time is money, and money is what keeps you in business. Therefore, all hours on the clock should be focused on generating revenue, agreed? Allocating time to administrative tasks such as payroll limits the amount of revenue your company earns.
When you are in the early years of running a business, you might have to do a little bit of everything. Sales, accounting, marketing, and customer service may all be handled by one person until you hire some employees to help. At some point, you will find yourself swamped with more work thank you can handle in a given day. When you get to the point of maximum work capacity, it’s time to offload the responsibility to a 3rd party so that you can free up time for more important matters. Focusing on revenue-generating activities is exceptionally more important than spending time with on payroll processing since it does not make your company any money.
The Benefits of Outsourcing Payroll
When you outsource payroll processing you are paying someone else to handle employee direct deposits for each pay period, complete quarterly tax forms, and remit tax dollars to the state, federal and local government. When you pass on payroll processing onto a payroll company, the third party bills you for their services and the company pays sales tax associated with the service costs. This leaves you with more time to promote your business, acquire more clients, spend more time managing your operations and invest more time into training, and developing your employees. The benefit of outsourcing payroll is the opportunity cost. It is better to focus on growing revenue than to focus on reducing expenses.
If you are unsure about making the leap from processing payroll in-house to outsourcing to an outside company, feel free to contact us with your questions. Choosing a payroll provider may be difficult, so make sure you do your due diligence making the change. Check out our article titled, 11 Reasons Why Businesses Change Payroll Services as a guideline for selecting the right provider for your business.