Why Payroll Outsourcing Is Great For Your Business ?
Payroll processing is emerging as a savvy strategy for businesses, especially small businesses. The strategy of outsourcing payroll services, when done correctly, allows businesses to tap into the expertise of experienced professionals without paying them as an employee.
What Is Outsourcing Payroll?
Outsourcing payroll is the decision to move the operations surrounding payroll to a third party company. Payroll outsourcing is not, however, purchasing a payroll software to improve the automation and regulation of your payroll processing. A payroll outsourcing company, instead, helps take over the payroll process, including the optimization and use of your payroll software.
Outsourcing payroll can be on a recurring or project basis. Recurring payroll would include the processing of payroll at your company’s set cadence. The payroll company would help manage change, ensure compliance and correctness, and optimize processes. Tasks an outsourced payroll company could perform include system selection and implementation, unbundling from a PEO, state tax registrations, or payroll processing/workflow design.
What Are Some Benefits of Outsourcing Payroll?
A business executive has to weigh the pros and cons in order to discuss outsourcing the payroll function. Here are the top 5 benefits of outsourcing payroll.
- Peace of Mind – When you use a company with experienced payroll professionals, it gives you peace of mind that your payroll is being done by experts. Payroll is no longer a stressor. Because you use an outsourced company, any issues are quickly taken care of by that company. .
- Compliance – Outsourced companies have to do payroll right or else their business would quickly fail to exist. They can handle difficult payroll challenges, and they have extra experience from working in multiple businesses. It is easier for these companies to keep up to date with new laws, regulations, and system updates.
- Time – Time is the enemy of all entrepreneurs. This study indicates that payroll takes small business owners 5 hours per pay period or 10 hours a month to complete. Gaining this time back is one of the most beneficial parts of outsourcing payroll.
- Cost-Effective – Outsourcing payroll is inexpensive. Most companies charge on a PEPM model or hourly rate. A range for PEPM is $10-$25 per employee per month. Businesses also typically charge a minimum fee. For a business with 1-20 employees, the range can be from $100-$500/month. While this may seem expensive, it likely frees up the aforementioned 6 or more hours of time. As an executive, you would likely bill at least $200/hour for your time. Therefore, you are saving upwards of $700 a month by outsourcing payroll.
- Happier employees – Employees with payroll errors or unreliable paydays are much more likely to leave a business. Just look at some of the statistics in this blog. Having correct and on time paydays is essential for the wellbeing of your employees.
Why Is Outsourcing Payroll a Good Business Strategy
Now that you understand the benefits of outsourcing payroll, what makes this a great business strategy? Outsourcing payroll is specifically great for small businesses for two reasons.
First, fractional payroll services help your business grow. Those 5 benefits above allow your business to grow because you have more time and mental space to focus on expanding your business. .
Second, outsourcing payroll is impactful because of the minimal risks it poses. The two main risks or cons associated with outsourcing are security and cash flow.
The chance for employee or other sensitive information to be stolen is increased because your company is introducing another business into your security and communication processes. In the process of setting up an outsourced payroll partnership, communication and security should be discussed. Outsourcing payroll can also tighten your cash flow. Because your business moves from internal to external, your bookkeeping will show an added expense that tightens cash flow. Although small, the added expense could be difficult if the timing is not right.
Do Small Businesses Outsource Payroll?
Yes! In fact, outsourcing payroll is very common amongst small businesses. Around 45 percent of small businesses use a payroll service. This strategy is an emerging trend as our post-pandemic world shifts toward a fractional economy, where businesses need and value expertise.