For organizations, inaccurate data is the top barrier to effective payroll operations. A payroll provider’s sole responsibility is to ensure payments are made correctly and tax laws are followed. As a result, the chances of making a mistake are lower than with an in-house accounting team. But others can also help with a whole suite of human resources tasks, like benefits management, time off, and more. Keep these needs in mind as you seek out the right payroll service.

• When selecting an outsourced payroll provider, consider your budget, expansion goals, and payroll team’s bandwidth.
• If you do your research, find trusted companies, and can justify the cost with the benefits, outsourcing payroll could very well be the answer for you.
• At the same time, they may be legally responsible for cases of misrepresentation or a failure to accurately report employment taxes to federal and state government agencies.
• Loading off extra responsibilities and workload to external service providers is always a good way to remain efficient and productive in the workplace.
• Some mistakenly believe outsourcing payroll services include HR services that help you hire new people, but HR and payroll outsourcing are different.
• The payroll service will likely need access to that information to calculate and deliver payments via payroll checks or direct deposit.

A new study from Ernst & Young reveals the true cost of payroll errors. The best payroll providers will work with HR — not against it — to find the best process. Before this practice, it was unheard of for companies to entrust compensation to anyone outside the organization. As tech development has streamlined payroll’s more tedious tasks, however, outsourcing payroll can be more cost-effective. The term “payroll” can describe both a company’s list of employees to be paid and also the total amount an employer owes in wages and salaries. In the modern business context, however, payroll most often refers to the process of paying employees or to the entities responsible for carrying this out.

Credits & Deductions

For most companies, performing payroll functions in-house amounts to nothing more than an important housekeeping duty; the company itself is expert in something entirely different. A payroll outsourcing provider or “payroll service bureau,” on the other hand, may perform payroll accounting definition functions and nothing else. If it does offer other services as well, these are likely to be in similar areas. At the end of the year, businesses must submit a year-end payroll tax statement that verifies each of the quarterly figures and calculates any remaining taxes due.

Employers need to file wages paid to employees, taxes withheld, Social Security and Medicare deductions and employer’s contributions to Social Security and Medicare. The IRS says to store payroll records for at least four years from the date when the taxes are due or from the date that you made the payment―whichever is later. This means that you need to keep time cards, spreadsheets and copies of checks and deposits for this period of time should an audit or a discrepancy arise. Employees must be sent a Form W-2 by January 31 of the year following their paid wages.

Companies not using a payroll provider may have a dedicated payroll professional or human resources (HR) expert processing payroll. As you can see, the average cost of outsourcing payroll is highly dependent on the number of employees you have working for you. Larger workforces can expect lower costs, so while small businesses may be spending £4-£6 on payroll services for each employee per month, a much larger company could be spending as little as £3.50 per employee. Engaging a PEO will also provide you with HR services such as benefits, compliance, and risk management in addition to handling payroll processing, deductions, and reporting tasks. PEOs are suitable to businesses of all sizes as they have the flexibility and expertise to handle the different legal jurisdictions and tax laws.

Cost Savings

We’ve crunched the numbers, so read on to find out whether this admin-busting innovation is the right choice for your business. A PEO service may come with a higher price tag than basic payroll outsourcing options. However, this cost reflects the wide-ranging HR services it offers.

Manual Processing vs. Using a Service

According to Sage, UK workers already spend around 120 working-days per year on administrative tasks. By outsourcing payroll, you can ensure that your employees are spending time ‘on’ your business, rather than ‘in’ your business. The payroll service will likely need access to that information to calculate and deliver payments via payroll checks or direct deposit. Payroll outsourcing also enables globally dispersed organizations to save money if they use one global payroll provider. Hiring and paying employees in multiple countries requires more payroll administrators and legal advisors.

What should I look for in an outsourcing vendor?

Payroll processing is a complex and potentially risky business operation. Even with trusted partners, there is a risk of identity theft, embezzlement, or tampering with company records for personal gain. Cassie is a deputy editor, collaborating with teams around the world while living in the beautiful hills of Kentucky.

Outsourced Payroll Functions

By outsourcing tasks, you can ensure your payroll is getting the attention to detail it requires to run smoothly. Your in-house accounting team can instead focus on core tasks to support your team as you grow. For more advanced services, pricing can be a little higher per month—but the long-term savings in time, effort, and accuracy quickly make outsourced payroll cost-effective. As with all things in the business world, it’s a good idea to have a budget before committing. The great news is that full-service payroll outsourcing doesn’t have to be expensive. Chances are, that’s a fraction of the cost of the time you might spend on payroll if you’re doing it yourself.

Offer health, dental, vision and more to recruit & retain employees. These changes in the post-COVID-19 working environment mean HR teams have more on their plates than ever before. Fortunately, leveraging outsourced talent to help fill in the gaps for your in-house teams can help to address this growing workload.

While these complete payroll solutions can be valuable, they can incur additional fees that raise the overall cost of payroll outsourcing. Many employers outsource some of their payroll and related tax duties to third-party payroll service providers. They can help assure filing deadlines and deposit requirements are met and greatly streamline business operations. When considering whether to outsource this function, the time and resources required to complete essential payroll tasks often weigh heavily in the decision-making process. Some think, “Why outsource payroll if I have to know about taxes and regulations anyway?

When should you outsource payroll?

Reporting Agents improve the efficiency of IRS tax collection and compliance. Reporting Agents assist employers in making required tax deposits and tax information filings to the federal government and to state and local governments. However, it’s worth investing in finding the right provider for that system. You’ll need to withhold tax amounts and forward the totals at the appropriate time. The first few payrolls will likely be the most difficult as you walk through the process and get used to what you need to do.

From this initial contact, you will also be able to gauge their level of knowledge about your industry, state and federal tax laws, and the like. That said, several things can determine the basic cost of outsourcing your payroll. A payroll strategy, along with outsourcing, can help you save time, improve efficiency and more.

Outsourcing payroll can ensure maximum data security and even prevent embezzlement, identity theft, and other risks. Processing payroll and maintaining compliance standards is difficult for overwhelmed payroll departments, especially if their organization is growing quickly. But for many small businesses, worrying about details like payroll can actually keep you from commanding that leadership role. To this end, assign administrative employees to serve as a liaison between your workforce and the payroll processor. Its financial value as a near-term, cost-cutting measure has been boosted dramatically by globalization, which opened access to international labor far less immediately expensive than America’s domestic workforce. Last month, workers walked off the job in a three-day strike to protest staffing levels, wages and other grievances.