Outsourcing payroll is a smart way to save costs- especially for small businesses. Payroll companies write checks, offer direct deposit, and provide W-2 and other tax reporting forms at the end of the year- they also calculate employee tax amounts, compute funds for deposit to employee savings accounts, and prepare job cost reporting.
Some payroll companies offer features like online account access, allowing employees to keep track of how many sick and vacation days they've used and access payment records easily.
How Outsourcing Works
First, you'll designate an account for fund disbursement. Payroll processing can draw checks from an account that you already have, or set up an account that requires regular or automated deposits. Setting up the account requires employee information, such as social security numbers, employment forms (W-4s and I-9s) and banking information if you'll be utilizing direct deposit features. Before each payday, you'll relay information about employee hours worked, commissions, bonuses, or sick days taken. The payroll company does the rest- most even offer online access for employees, so they can change savings account information, W-4 forms, or other relevant documents themselves without the lag time it might take for your business to file this paperwork properly.
The benefits of payroll processing are tremendous. Keeping track of tax laws and changes in employee information can be difficult and time consuming, for you as a business owner or for a bookkeeper. A payroll company is an expert- outsourcing can help you avoid the costly penalties or fees that can accompany late filings or errors in tax documentation. A payroll company can perform computations much faster and more efficiently, ultimately saving money for your business.
Payroll companies can also manage employee savings accounts and deferred compensation or employer contribution accounts, such as cafeteria plans, group term life insurance, and health savings accounts. Payroll companies also offer reporting functions to help you manage employee pay more efficiently. Companies can determine employee/labor cost per job, per project, or per client. When choosing a vendor, ask which features they offer and if they specialize in certain functions.
Here are a few things to consider when choosing a vendor:
Vendors have different ways of collecting pay information. Some companies require employee hours to be "called in" a few days before each payday, others allow you to enter the information online. Some automate the process, and can make changes to information if you call in advance with pay changes, such as when an employee gets a raise. Have vendors walk you through a "call in," and choose a vendor with a process you can easily manage. How soon before payday do you need to provide information? If an employee takes a vacation, earns a bonus, or makes a change to a W-4, how soon will this information be reflected on payroll registers? Ask a vendor how quick their turnaround time is.
Costs are assessed per-check or per-employee. The length of pay periods, the complexity of calculations, and the number of employees you have can all have an impact on the total cost. Ask vendors for an itemized quote that details the services they provide. Make sure you know what you're purchasing.
It's important to ask for references and choose a reputable vendor. Vendors will have access to your and employee bank information, social security numbers, and savings accounts. Make sure any online information is secure, and choose a vendor you are comfortable working with.