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Should You Manage Your Own Payroll or Outsource?

Which payroll option is right for you? Our friends at Technology advice review the pros and cons of each.

In 2016, the median pay for field service industry professionals was nearly $46,000 according to the US Bureau of Labor Statistics, which counted about 292,000 jobs in this field in 2014. Because field service technicians receive highly specialized training and often fulfill their duties within less-than-optimal environments, it’s important to keep technicians happy to reduce turnover. The most obvious way to keep employees happy and reduce attrition is by offering a commensurate level of attention to the payroll process.

Payroll should be much more than a line item on your quarterly financial report; it represents the way your company keeps promises. If you take out the wrong amount for taxes and benefits or file payments late, you run the risk of losing your employee’s trust in addition to violating regulations that could come with expensive consequences.

The intricacies of the payroll process lead many small companies to consider outsourcing. Business owners quickly outgrow the stage where they can devote hours to payroll every other week and ignoring more imminent business needs and operations. Deciding whether to manage your own payroll or outsource depends a lot on how much time, knowledge, and money you’re willing to spend.

This article is designed to provide a better understanding of your options, but you’ll still need to do some soul-searching and make a few difficult decisions on your own.

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Payroll should be much more than a line item on your quarterly financial report; it represents the way your company keeps promises. If you take out the wrong amount for taxes and benefits or file payments late, you run the risk of losing your employee’s trust in addition to violating regulations that could come with expensive consequences.

Tamara Scott, Technology Advice Quote

Option 1: DIY

Think of this option as your bare-bones paper and pencil or spreadsheet option. It’s not going to cost much on the front end, but you may go crazy trying to learn and track everything.

Time

You will spend significant amounts of time working on payroll every week with any option, but doing it yourself will take the most time. When you DIY, you’ll spend more time adding up employee hours, calculating taxes, writing/printing checks, and filing.

Knowledge

This option only works if you spend time familiarizing yourself with the tax codes and benefits procedures. Also take into account financial factors regarding hours, overtime, and 401k contributions, not to mention bonuses and sales commissions.

Money

This is the lowest-cost option, if you don’t include the opportunity cost of a longer process. You save money by handling everything yourself, probably on a spreadsheet.

Only consider a DIY payroll system if you are time-rich and revenue-poor. If you have a small staff, an uncomplicated payment structure without a lot of benefits, or lots of extra time to bring the information together, go for it. The opportunity-cost here can be expensive, especially for small business owners with tight schedules.

Option 2: DIY + Payroll Software

Hopefully you already use some sort of software to collect employee time cards and manage your accounting. Many of these options offer payroll processing for an additional fee per employee, with customer support. If your current vendor does not offer payroll, you might consider a standalone solution.

Time

You’ll still need to manually enter or check your numbers to make sure they’re correct, but payroll software will automate many of the more tedious aspects, saving you time and headaches. Most payroll programs remember changes and settings you put in place from pay period to pay period, so you can “set it and forget it” for the most part. Many systems also offer electronic filing, which means you can pay your taxes and do all your deductions from the same interface you’re already using.

Knowledge

Payroll customer support specialists don’t just fix bugs and answer questions. They’ll also keep you from messing up your payroll, because the more you mess up, the less you want to use their software in the future, and the more likely you are to give up and pay an outside firm. If your vendor provides trained payroll experts as a resource, use them.

Again, running a payroll program in-house will take a lot of learning, and you’re going to need to invest plenty of time in learning how to use the software, plus general accounting principles that apply to your payroll.

Money

This is the least expensive option in terms of time and money, especially if you choose a lighter, cloud-based option. Calculate the expense of a perpetual software license or a monthly subscription, and possibly customer support. Check the terms of service carefully, as many payroll software options require a fee per-employee. If you decide to hire an in-house payroll specialist to manage the process, you’ll need to factor in that employee’s hourly or salaried wage, of course.

Buying a payroll software is usually the best option for most small business owners who need to spend more time growing their business. If your business is more established, you can hire an employee who will take care of the administrative work.

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Buying a payroll software is usually the best option for most small business owners who need to spend more time growing their business. If your business is more established, you can hire an employee who will take care of the administrative work.

Tamara Scott, Technology Advice Quote

Option 3: Outsource

Companies that have grown quickly or have minimal internal accounting expertise may find that outsourcing solves a lot of problems. While this option does take careful planning and follow-up with the payroll professional or agency, many companies outsource to simplify their processes and many end up reducing overhead.

Time

This option will save you lots of time, as you’ll only need to sign off on the final totals each pay period.

Knowledge

You will want to have a general knowledge of the accounting ramifications of payroll outsourcing before you choose a provider. Pay attention to location and experience when choosing an outsourced payroll service; these factors can impact the level or ROI you do or don’t achieve. You want an accountant who is familiar with your state’s tax code and your company’s industry. Deductions and overtime also vary from industry to industry, so it’s important for both you and the accountant to invest some time in getting to know these.

Money

Contract for savings. A really good accountant will be able to tell you how they’ve helped other companies run more efficiently or save money. Ask for specific stories from the accounting firm or individual. While a payroll/accounting contract will cost you significantly more than the other options here, the overall savings of not getting audited can pay dividends.

If you don’t have enough time or knowledge of accounting to go it alone, but you have the funds to pay for an expert, outsourcing may be a good option. A good payroll provider will:

  • Make sure your tax filings are correct and on time
  • Make sure your employees are paid correctly and on time
  • Explain any complications or inconsistencies

Whether you manage your own payroll or outsource to an accountant, you’re going to need a centralized system for managing all of your time, pay, benefits, and tax information. This can be as basic as a spreadsheet (which will still be pretty complicated and error-prone) or as advanced as a fully integrated accounting/ERP system. If you can’t afford to outsource your payroll, consider a time clock app and a stand alone accounting solution to simplify your process.

Tamara Scott

Tamara Scott is a technology analyst at TechnologyAdvice, a research company that connects buyers and sellers of business technology. She writes about payroll, accounting, ERP, and many other technology verticals.

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