Why do companies outsource payroll services?
Payroll services are services rendered by firms that specialize in preparing and processing payroll for other companies. They take data send electronically by their customer firms, calculate, deduct, and deposit federal and local taxes, create paychecks or direct deposits, and report back to their customers. Outsourcing of the payroll responsibilities to the outside companies frequently saves small or medium companies a substantial amount of money, mainly because they save on salaries for accounting staff.
Also, shifting the responsibility out is especially beneficial for companies that have many employees in many different states with different payroll regulations. The examples of payroll services companies in the US are ADP, Paychex, CompuPay.
There's more to managing small business payroll than writing checks and handing them out to employees on time. You need to keep accurate records, calculate and pay payroll taxes, and communicate effectively with employees. Many small business owners are finding that they can simplify the process by using an outsourced payroll provider to manage the entire process cost-effectively and efficiently.
Using an outsourced payroll solution is typically more efficient for a small business than processing payroll internally. Leaving payroll to experts frees up hours that you can devote to other important parts of your business. Whether it is your time, staff time, or a combination, chances are the hours could be better spent winning more business, improving customer service, fine-tuning business operations or launching a new product line.
Many business owners underestimate the cost of processing payroll internally by failing to account for all hours spent and resources allocated to pay employees and maintain payroll paperwork. A thorough cost assessment usually proves that a small business saves money by outsourcing the processing, tracking and filing of payroll documents. How much the time spent is actually worth: consider the cost of your time and the time of anyone who processes or "touches" payroll.
Often, many people in a small company are involved in the various parts of payroll processing. What savings would outsourcing provide: since an outside provider can handle all the responsibilities involved in managing payroll and answering employee questions, a small business can often eliminate or reallocate an internal payroll resource. Calculating federal, state, and local employment taxes and filing payroll-related tax paperwork can be more than just a hassle.
If it's done incorrectly, your small business may face penalties and even interest on money owed since the mistake was made. In fact, it is estimated that one in three small businesses receive a tax penalty costing over $800 each year. Find out how ADP can help small businesses with their payroll & HR needs.
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