10 Signs It’s Time to Outsource Your Payroll


10 Signs Its Time to Outsource Your PayrollWhen you first start your business, you may be the sole employee, and your “payroll” is simple to do. Once you hire another employee or two, you may find payroll more challenging, even if one of the employees you hire does part-time bookkeeping. By the time you have four or more employees, payroll can be very complex indeed, and can overwhelm the person responsible for it.

Your employees naturally want to be paid on time. Plus, they need withholding and other deductions calculated properly, in addition to accurate wage calculations for each pay period. That’s no easy task.

Hiring a payroll service is typically one of the first outsourcing choices of new businesses, and with good reason. Sure, outsourcing is an expense, but it’s not nearly as expensive as high employee turnover due to a haphazard payroll procedure and late paychecks.

Here are 10 signs that it’s time for payroll outsourcing.

1. You’ve Realized How Complicated Payroll Is

Wages, withholding, and paycheck deductions have to be calculated with perfect accuracy. And even with only a few employees, this is a big task to take care of every two weeks.

2. You’re Worried About Employee Confidentiality

You or your employees may be sensitive about the employee in charge of payroll knowing their financial situation. Outsourcing payroll preserves employee confidentiality.

3. You’re Faced with Buying Expensive Software and Training Two People

Payroll software is also an expense, and cloud-based payroll software usually charges a monthly fee. Ideally you should have more than one employee trained in using the software in case the person in charge of payroll is sick or otherwise absent.

4. You Need to Focus on Your Business

You went into business for a reason, and it wasn’t spending hours calculating payroll and writing checks. Outsourcing payroll gives you more time to focus on doing what you do.

5. You Have Made Payroll Mistakes

Employees may forgive one late paycheck, or the rare miscalculation, but make more than one or two and your star employees may start looking for greener pastures. Furthermore, make a mistake on tax withholding, and your IRS penalty will dwarf what you’d pay to outsource payroll.

6. You’re Ready to Offer Employee Benefits

It’s a great day when you’re finally able to offer health insurance or 401K savings plans for employees. But this complicates payroll. Payroll outsourcing is the smart choice when you start offering employee benefits.

7. You Do Not Have Any Legal Training

You don’t have to have a law degree to do payroll correctly. However, if you don’t have the legal knowledge to realize how expensive payroll or tax withholding mistakes can be, then you shouldn’t be doing payroll yourself.

8. You Barely Get Payroll Done on Time

If doing payroll is always a race with the clock to get your employees their checks on time, you should strongly consider outsourcing. The time savings and stress relief are well worth the cost.

9. You’ve Missed Payroll in the Past

You may have forgotten all about that time you missed payroll, but you can bet your employees haven’t. Missing payroll for anything other than a disaster, death, or other major calamity puts employees on notice that they should start looking for a better employer.

10. You Work with Multiple Contractors

You may think that you save a lot of hassle by contracting rather than hiring employees. But you still have to generate 1099 forms and have everything documented for tax purposes. It may be time to outsource payroll if you regularly deal with multiple contractors, particularly if they’re in multiple locations.

Payroll outsourcing can deal with direct deposit, printing and delivering checks, calculating time and attendance, and getting federal, state, and local taxes right. When you outsource payroll, you have someone else to deal with all compliance and regulatory issues, and your employees will be able to count on being paid accurately and on time.

Photo Credit: Paulien Osse


Business.com Editorial Staff

Business.com Editorial Staff

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The Business.com Editorial Staff writes on topics relevant to small and medium-sized business (SMB) owners. Posts cover best practices, top tips, and studies that deliver insights specific to SMBs.

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