Guide to outsourcing payroll (for when you’re tired of doing it yourself)

As a business owner, your most valuable asset is your employees. This makes having an accurate and reliable payroll system absolutely essential for your business. After all, your employees need to be paid for the work they do–and they expect to be paid properly and on time. 

In this guide, we go into the different payroll systems you can use, services payroll firms typically offer, the benefits to outsourcing your payroll, and questions to ask a payroll firm to make sure they’re right for you.

What is a payroll system?

A payroll system is your method of ensuring your employees are properly and adequately compensated for the work they do and that any governmental obligations or remittances are submitted. 

In-house payroll

In-house payroll is done by a person who works in-house for your company. You may have hired a payroll employee or an HR person to take care of it, or you might be doing it yourself. 

The advantage of in-house payroll is your company controls all aspects of the payroll, including maintaining confidential information. Additionally, by doing it yourself you aren’t paying any fees for the service, although you are paying a salary to the person doing it. 

There are some drawbacks, however. 

  • Someone in your company must be responsible for staying up-to-date with relevant laws
  • There are no checks and balances to prevent errors
  • Errors can take a long time to be caught and may therefore be more costly 
  • It can be very time-consuming and may take you or another employee away from tasks they’re better suited for

Who in-house payroll is best for

In-house payroll is best for small businesses that do not have many employees or do not have highly irregular or complex payroll requirements. 

Bookkeeper or accountant managed payroll

You may decide it’s best for someone with more financial knowledge and expertise to take over your payroll. Often, people in that situation hire a bookkeeper or accountant to take over their payroll. In these cases an outside bookkeeper or accountant manages the payroll, with input from the business owner. 

The pros of this system are that your company is no longer responsible for staying up-to-date on all payroll laws, you now have someone with expertise overseeing your payroll which decreases the risk of errors, and you have an outside set of eyes watching for errors, so any errors will likely be caught more quickly. 

Disadvantages of this system are that it costs money to hire an accountant or bookkeeper. Also, although they are experts in financial matters, they may still not have a lot of specific experience managing payroll, or they may only manage certain aspects of your payroll, requiring you to take on other related responsibilities. For example, they may only prepare payroll and maintain your tax records, but they may not offer deductions or direct deposits. 

Who bookkeeper or accountant managed payroll is best for

It’s best for companies that don’t want to do their own payroll and can afford outside help. 

Software managed payroll

These days, there are many software options to help employers more easily, accurately, and efficiently manage their payroll. The systems are cloud-based, are automatically updated, and provide information to you 24/7. 

The advantages of software managed payroll are that it is much easier and more efficient to do it yourself with the help of software, the information is available to you any time, anywhere in the world, and calculations are done automatically, reducing your risk of errors. 

That said, there is still a lot of room for error, such as using the wrong codes to classify employees. Additionally, you’ll still need an in-house employee to manage the system and you won’t have an outside set of eyes double-checking your work. 

Who software managed payroll is best for

It’s best for companies that are small, that still want to manage their payroll in-house, and that don’t have many employees or overly complex needs. 

Payroll firms

Like bookkeepers and accountants, a payroll firm is an outside service that manages your payroll for you. Unlike bookkeepers and accountants, the payroll firm focuses entirely on payroll administration and human resources, so they are experts in those areas. Additionally, many payroll firms work virtually, so you’ll still have access to software that enables you to access your information 24/7. 

A payroll service firm frees up your time–or your staff’s time–to focus on other matters, increase the expertise you have access to as you manage your business, and can set you up with the best software to meet your needs. They’ll also ensure your payroll is accurate and on time and decrease the risk of expensive errors. 

That said, they will cost money and you may have less control over your payroll systems. 

Who outsourced payroll firms are best for

Business owners who know they don’t want to put internal resources to payroll and who can afford the cost of a payroll firm. Also businesses with complex payroll needs who want the full payroll process managed by someone else.  

So what is a payroll firm?

A payroll firm is a professional service that takes care of your payroll processes, such as:

Tracking employee time and attendance

A payroll firm provides a way for employees to track their time electronically. This gives you time stamps showing who was where and when. This data is automatically accessible to the payroll service specialist.

Calculating taxes

A payroll specialist will calculate all necessary taxes for you. Because they’re often specialists, they know what taxes apply and which don’t. This eliminates guesswork and ensures that you’re always paying only what you have to.

Accounting for compensation premiums

Holidays, weekends, vacations, overtime, or undesirable shifts – there’s a lot to keep track of when running a business. It’s so easy to miss any of these irregular compensation premiums. A payroll specialist takes care of these variables.

Adhering to all rules and regulations

A dedicated payroll specialist makes it their business to ensure that they know every rule and regulation, so you don’t have to.

Setting up, adjusting, and making direct deposits

The actual act of paying people–writing cheques or making direct deposits–takes time. Having someone else take care of dispensing the money is a terrific way to gain your time back. Over months and years of regular payments, that time adds up.  

Providing electronic payroll records

There’s a common misconception that handing over your payroll administration means handing over control of your business. This isn’t the case. Any payroll firm worth its weight will provide you with accurate, complete, and timely payroll records. That means you can always review what’s going on and talk to them about any changes that have to be made.

Top 5 benefits of outsourcing your payroll

While outsourcing payroll is another cost to consider, it can save you a great deal of time and money. Here are the ways outsourcing payroll can help you:

  • Free up your time

There’s a lot of energy that goes into tracking hours worked, making sure deductions are taken out appropriately, and compensating for overtime, bonuses, and other benefits.

Outsourcing your payroll administration is one of the easiest ways to free up more of your time, which can then be put into other tasks that actually help your business thrive. Once you reclaim this huge chunk of time, you’ll wish you had made the switch sooner.

  • Reduce errors

Yes, there are the actual hours worked that you need to account for. That’s complicated enough. But add in sick days, holiday pay, other types of leave, employees leaving early or arriving late, and other complications, and suddenly your payroll administration has become a daunting task that you would probably rather just ignore.

This is where the beauty of outsourced payroll comes in. Because you are paying a professional to worry about all of these little things, you no longer have to worry about all of the potential areas where you could make a costly mistake.

  • Reduce costs

While you may initially resist the cost of outsourcing your payroll, it’s actually a money-saver. When you put a dollar amount on all of the time you spend struggling through, this is often enough in itself to pay for a professional to take it off your hands.

  • Maintain compliance

Maintaining compliance with your region’s tax authorities is a challenge that has to be met every year. And tax laws and codes are always changing. The average person can’t be expected to stay on top of all of this information, so why not get someone who knows the ropes to take care of it for you? It could save you a lot of money come tax time.

  • Eliminate headaches

There is nothing more valuable than the feeling of being stress-free. When you hire a payroll professional, you can relax knowing that your business is in good hands, your employees are getting paid correctly and on time, and you’re doing everything right.

Asking the right questions

Now that you’ve decided to outsource your payroll, you need to know how to choose the best service provider for you and your business. 

Before you sign up with a payroll service, make sure to get answers to these questions:

1. What’s included in the price?

Usually, what a payroll firm will offer is standard, but it’s much better to have their scope of work spelled out from the get-go than be disappointed later. It’s also vital you understand your role and responsibilities in the process, so you aren’t holding things up.

They may also offer different packages, so if you start with them while your business is small you can choose a lower-cost option and upgrade as your business grows and your needs evolve.  

2. What will the transition be like?

Many businesses put off outsourcing their payroll because they fear the transition period.

It’s not realistic to expect all transitions to be seamless–there will be issues that arise. What’s important is that your provider has a plan for dealing with issues and can give you a sense of how the process will look. 

Ask questions like:

  • Will pay be disrupted?
  • How will my business (or my employees) be affected by the transition?
  • How will you handle issues that arise?
  • How long will the transition take?
  • What do I need to do to prepare?

These are all valid questions that your provider should be able to answer. They have undoubtedly managed many transitions and can tell you precisely what it will look like and how they will handle any bumps in the road.

3. Who will help me when I have a problem?

As a business owner, you don’t have time to search FAQ pages or wait on hold when you have an issue. Ask your potential service provider to show you how their support system works. See if you have access to a dedicated advisor and how that person can help you – at any time of day or night.

4. What experience do you have in my industry or area?

Ask potential service providers why they think they would be the best fit for your business. Find out what experience they have with companies like yours and if they’re familiar with local tax and employment rules.

5. How much does it cost?

You must know what it will cost each month to have someone do your payroll. If the fee would be hard to pay, there may be a better time to take the leap, or a more cost-effective way to manage your payroll for now.

That said, hiring a payroll service is often cost-effective in terms of lost time. If you, as the business owner, struggle to complete payroll, it may cost you less in the long run to get somebody else to do it. That’s because you will free up time to focus on other aspects of your business, which could generate more money. 

With a payroll service helping you, you’ll likely have fewer errors, which will also save you time, energy, and stress.

Final thoughts

It’s difficult to give up control of your payroll, but as your business grows, it makes sense to do so. The benefit of having a professional take the task off your plate pays for itself in the time and freedom you gain.

Are you ready to take the burden of payroll administration off your shoulders? Contact us to find out how our payroll solutions can help you get your time back.