Usually the circumstance is this: An overworked office manager or accounting employee would multitask payroll responsibilities alongside whatever her original job duties. Some small businesses would rely on the owner’s spouse or relative to run payroll. With the in-house payroll concept, these companies run the risk of receiving notice that their payroll person may be taking an extended vacation, fell ill, took another job or not able to do payroll.
When their bookkeeper or controller gets a new job, they will walk out the door with their knowledge of the payroll process. This leaves the businesses without a qualified or proper payroll person with the same knowledge. To add to the issue, the payroll work repeats itself once a month for the very least.
Outsourcing their payroll (to a professional and reliable payroll service in the local area) work would ensure the retention of that specific knowledge and all the payroll-related tax laws and regulatory mandates that are required for compliance by the government. A payroll servicing company processes the payroll by gathering employees’ information (including hired date, job title, basic salary amount, etc). It is what payroll servicing companies and their experts have been trained to do. This is one important part of the guaranteed the professional service would be able to provide. The payroll service would obtain any time card data, calculate the pay that’s due to each employee, and then pay that amount by issuing a direct deposit or payroll check.
Most reliable payroll outsourcing services would generally follow the steps below when processing payroll:
- Set up payroll software with the client’s company and employee data, including their payroll bank account and the employees’ bank accounts for direct deposit.
- Collect new employee information and provide new hire reports.
- Request and/or obtain time card data of the employees (i.e. the clock-in times and clock-out times, or simply hours worked). The data of each pay period would be imported to input into their payroll software.
There are a few more items that have not been mentioned including the service provider would introduce cloud based accounting/payroll software/tool such as Xero.
Other factors to consider (when outsourcing Payroll) may include:
- Better data security
- Savings in time and money
- Peace of mind (for knowing their payroll is being handled by professionals)
With a payroll service in place, vacations and/or illnesses would not have negatively affected the output speed and quality.
Another area is the use of software. A regular question that any small business owner get asked is whether his/her company is using the latest version (or at least a capable version) of a payroll software. The tax tables with the latest data update must be installed with the software, or else the not up-to-date data would cause errors in calculations and incur penalties. The maintenance of the software (the software upgrade itself, and the regular data updates) can be an ongoing cost that companies do not want to pay. When using an outsourced payroll service, businesses would not have to deal with any of these and can simply focus on their core business (i.e. what they are good at doing, and where the most revenue comes from).