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Should Your Small Business Outsource Payroll or DIY?

1. December 2016 08:38

woman holding a calculator

Marc Prosser, cofounder and managing partner of the education and resource site Fit Small Business, offers helpful hints on managing payroll, a major pain point for small businesses.

If you’re just starting your own company, you may be wondering whether to outsource your payroll operations or keep them in-house.

While there are many factors to consider, chief among them will be the role that the payroll department plays in your business. Do you intend to use the data to make business decisions or adjust internal processes? Or is payroll more of a means to an end? And of course, what can you afford?

In this article, we’ll review what payroll is, the pros and cons of doing it yourself versus outsourcing it, and what your options are if you intend to outsource.

First Things First: What Is Payroll?

Payroll is a term typically used to refer to employees who are owed salaries, wages, and bonuses. Sometimes the department that calculates these figures is also referred to as the payroll department or even just as payroll.

It’s important to understand payroll as a business owner for a few reasons:

  1. Payroll is subject to federal, state, and local regulations, so you will need to be aware of what rules and regulations you should comply with, especially if you’re thinking about doing it in-house.
  2. Payroll and payroll taxes can significantly impact a company’s net income.
  3. Employees expect to be paid the right amount at the right time. Errors with deductions or withholdings and issues with timeliness may significantly affect employee morale.

With so much at stake, getting payroll right is vitally important for any business, large or small. The question then is: should you outsource payroll or do it yourself?

Pros and Cons of DIY Payroll

If you enjoy delegating tasks or juggling multiple responsibilities yourself, keeping payroll in-house might sound like an appealing option. However, if you’re adding this responsibility to your own plate, you should consider how much time it’s going to take and what other tasks you might have to give up. As much as you want to do it yourself, it may not be a realistic option.

If you’re delegating to an employee, you’ll need to be confident they can keep private information under wraps. And, as mentioned above, you’ll also need to be sure you’re in compliance with local, state, and federal regulations and that wages and other benefits are accurate and paid in a timely manner.

So while you absolutely can do payroll in-house, there are several factors you may want to consider before you take the plunge.

Pros of DIY Payroll

Cons of DIY Payroll

When you start digging into which accounting software to use, you’ll realize that choosing software is not a small undertaking. There is plenty of accounting software to choose from, so do your research before selecting one for your business.

Pros and Cons of Outsourcing Payroll

Many business owners decide to outsource payroll because of time constraints; the steep learning curve; and the complexity of managing salaries, tax deadlines, important documents, and compliance issues.

If you’re thinking about outsourcing your payroll operations, here's what you should consider.

Pros of Outsourcing Payroll

Cons of Outsourcing Payroll

Outsourcing Payroll: What Are the Options?

If you’ve decided to outsource payroll operations, you still need to decide whether to go with an accountant, a firm, or online accounting software.

If you’re going to DIY your payroll, consider whether you need a little support, or whether you’re going to handle it all on your own, when selecting software.

If you need more help and can afford to pay a little more, you may want to opt for a payroll provider that can offer either outsourced payroll or accounting software.

You’ll want to compare…

The Best Decision Is the One That's Right for You

If you’re still on the fence about making a decision, turn to your accountant to learn more about what it will cost you to handle payroll in-house versus what you could pay someone else to do it for you. This will help you decide the most cost-effective option for handling your payroll.

About Marc Prosser

Marc Prosser

Marc Prosser is the cofounder and managing partner of Fit Small Business, a site that provides reviews and articles for small-business owners. Prior to starting Fit Small Business, Marc was the CMO of FXCM for 10 years. He joined as FXCM's first employee and grew the company to more than 700 employees.





HR | Small Business | Small Business Risk Management | Tips for All Small Businesses

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