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The Top Six Reasons Why Small Businesses Should Outsource Their Payroll
Many business owners aren’t accounting experts or don’t have any training or experience managing their own payroll. Payroll processing can be difficult and confusing for small business owners, and the fact that the IRS can impose penalties if not completed correctly makes payroll processing somewhat daunting. For this reason, most small business owners leave payroll processing to the experts, either by outsourcing payroll or processing it in-house (also known as traditional payroll).
1. Outsourcing your payroll is more profitable
If a business owner uses a public accountant (CPA) to do payroll processing in-house, the costs can be between $260 and $480 per payroll run, not per month, but each run of pay.
For in-house payroll processing, using a CPA is the best way to do your payroll properly because CPAs are specially trained in accounting and payroll procedures. However, Certified Public Accountants charge between $65 and $120 per hour and at around 4 hours per payroll processing cycle, the cost can be quite significant. And if your company runs payroll every two weeks or every week, you’ll double or even quadruple that amount. Even without a business degree, everyone knows that the lower your expenses, the faster you can become a profitable owner.
Outsourcing your payroll can give you all the benefits and accuracy of having a CPA do your payroll, but will cost you a fraction of the cost. It’s the best of both worlds; easy, precise and profitable. Outsourced payroll can save you thousands of dollars a year.
So how much can you really save? Let’s compare how much it would cost Small Business Inc. to manage payroll for its four employees once a month. Just to be conservative, we’ll use $65 per hour to estimate the cost of traditional in-house payroll, the lowest hourly cost for a CPA.
Base price of $44.95 per pay cycle + $1.85 per employee = $52.35
[$44.95 + ($1.85 x 4)]
Traditional internal payroll
Four hours at $65 per hour = $260
Payroll outsourcing saves Small Business Inc. $207.65 per month.
2. Outsourced Payroll Helps Small Business Owners Avoid IRS Penalties
So what if you can’t afford a CPA and decide to try your hand at calculating, paying, and filing payroll for your own small business? Due to complexity and ever-changing payroll laws, it’s easy to make mistakes.
Every year, approximately 40% of small business owners are penalized by the IRS for paying or filing their payroll taxes incorrectly. That’s a pretty high percentage, and at around $850 per year in penalties, processing your own small business payroll might not be as profitable as having a specialist do it for you. Payroll outsourcing companies such as Online Business Payroll automatically calculate, pay, and file your small business payroll taxes for you. Thanks to the automated process, you will never be late or miss a payment or deposit.
3. Outsourced payroll is easy
Payroll processing through an outsourced small business payroll service is easy to use. While setting up your employees might take minutes, the actual payroll run can be done in just minutes.
Simply log into your outsourced payroll service’s secure online portal and enter the hours worked by each employee during the pay period. After entering your employee’s hours, verify the information and click Submit. Your pay is done.
4. Outsourced Payroll Takes Care of W-2 and 1099 Forms for You
At the end of the year, small business owners must give their employees a Form W-2 or Form 1099 by January 31 of the following year. W-2s are forms that let employees know how much money they earned and how much federal, state, and local taxes were withheld during the year. Form 1099 is for independent contractors to whom you paid more than $600 during the year.
Not only do you need to give these forms to your employees and independent contractors, but you also need to file certain forms with the IRS. Again, if you don’t know what you’re doing, it could cost you IRS penalties.
Outsourced payroll companies keep track of this information and archive it for you. At paperless businesses like Online Business Payroll, small business owners can print W-2 and 1099 forms for their employees on the spot. Small business owners are able to get tax forms to their employees faster by allowing them to print these documents for them, rather than waiting for their tax forms to arrive in the mail.
5. Payroll outsourcing keeps you in control
Most outsourced payroll services allow you to maintain control over your payroll while taking care of the difficult payroll tax calculations in the background. Outsourcing your payroll is a beneficial relationship because it allows you to stay compliant with tax laws, but also allows you to focus on your business instead of trying to become a payroll processing expert.
Entering your payroll information online allows you to stay in control of your payroll processing and helps eliminate double entry or typing errors often associated with calling or faxing your payroll information to a customer representative. You enter it, you review it, you approve it – you’re still in control of your small business payroll processing.
6. First month free
The best thing about using an outsourced payroll service is that many companies let you try their service for free. You have nothing to lose, why not try outsourcing.
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