It is difficult to run a business without a great payroll management system. Getting it wrong can cost you a lot of time, employees, and money.
Every small business must apply some common sense tips to succeed. They include using free marketing tools, networking wisely, and managing cash flow. On top of other critical things like hiring a good team of employees and writing a solid business plan.
One things that’s missing from this list is a solid payroll system. While you can choose to setup and maintain payroll yourself more and more businesses are outsourcing it to experts.
Keep reading to learn why.
Reasons to Outsource Payroll Management
A good payroll management system isn’t just about employee compensation. It affects employee morale, financial stability, and a company’s compliance with federal and state governmental agencies like the IRS and the Department of Labor.
Despite its level of importance, some business owners set out to handle everything themselves. Some do it to save money while others view it as a simple enough process to keep totally in house. For others, it's in their nature as owners to want to control every facet of their business operations.
Time and again we hear from business owners that have went the DIY route and often it woulod have been much better in the long run if they had just outsourced payroll management to qualified payroll provider.
Here are five reasons why:
- To Avoid Payroll Mistakes
Last year, the IRS assessed 5.9 million civil penalties due to payroll mistakes. Ultimately small business owners ended up owing over 6 billion dollars in penalties for 2016.
These numbers show us two things, how common payroll errors are and how much they are costing business owners.
As a small business owner you shouldn’t expose your businesses to this type of risk. The extra costs from assessed penalties and regulatory fees generally cost at least 3x more than having a reputable payroll company handle your payroll and tax filing.
The most common payroll mistakes include:
- classifying employees as independent contractors
- improper issuing, reporting, and keeping of records
- failing to meet deadlines for reporting and depositing withheld taxes
- excluding gifts and prizes from taxable wages
- excluding reimbursements from employee's income
- late, miscalculated, or poorly reported payroll
- forgetting to add new State Unemployment Insurance (SUI) rates
There is a huge amount of data that must be properly maintained such as regular pay, bonuses, reimbursements, awards, live checks and the cost of employee paid benefits. These figures must then be reported to the Department of Revenue, Department of Labor and the IRS. Even a small employer with five employees can be responsible for more than 20 form filings and tax payments.
Most of the mistakes that happen during any payroll process are due to human error. If the individual who keeps up with the information is not aware of all of the deadlines and applicable laws that opens up a pretty large window for mistakes. Another common factor that leads to payroll mistakes is using a system that hasn’t been setup properly.
A payroll system that is not setup correctly will not provide accurate wage and tax calculations. Even if you run each payroll, file and pay each tax on time you can still have calculations errors that will end up costing you money. Professional payroll providers are familiar with situations that can lead to these types of errors and can setup their systems for you s