5 Reasons to Consider Using a Third-Party Payroll Service

5 Reasons to Consider Using a Third-Party Payroll Service: Considering using a third-party payroll service? You’re far from alone. Nearly half of all small-business owners describe processing payroll as “confusing,” “complicated,” and “frustrating,” according to a survey published by Small Biz Trends

Reasons to Consider Using a Third-Party Payroll Service

Yet, as much as a thorn in your side as it may be, payroll can’t be delayed. Nearly 70 percent of professionals say it would be very or somewhat difficult to meet their current financial obligations if their paychecks are even a week late, per the Getting Paid in America Survey.

Could payroll outsourcing be a better solution for your small business? Let’s take a quick look at who it works best for and reasons it might be time to find a good payroll company.

In-House vs Outsourcing: Which is Better for Your Business?

As a small business owner, you’re likely involved in every core aspect of your organization, from managing finances to overseeing your in-house human resources department. According to Small Biz Trends, a staggering number of business owners find themselves knee-deep in financial activities. But, as statistics show, a whopping 79 percent of them find the payroll process, especially staying compliant with payroll taxes, extremely time-consuming. This pain point often leaves many pondering the many advantages of alternative payroll solutions.

That means your choices generally boil down to outsourcing your payroll services or hiring someone and keeping the job in-house. Bear in mind, a full-time payroll specialist earns a little over $50,000 per year on average per PayScale, which puts having a full-time professional out of reach for most. In most cases, that would be overkill too, but you should still expect to shell out around $20 per hour as a base wage even if you’re not going full-time. Still sounds like a lot? Let’s look at outsourcing.

Considering these expenses, the benefits of outsourcing payroll start to shine. Third-party payroll services offer expertise and experience in managing payroll efficiently and can also handle tax withholdings, ensuring compliance with evolving tax regulations.

5 Reasons to Consider Using a Third-Party Payroll Service

Paying a third party to manage your payroll can be surprisingly affordable, with fees ranging anywhere from $25 to $200 per month, according to Chron. However, it’s not so much the upfront savings that make finding third-party payroll services a slam-dunk decision for small-business owners, it’s the five reasons outlined below.

1. Data Security

Whether you’re crunching numbers manually or using payroll software, you’re ultimately responsible for confidential payroll data. That means if your computers are hacked, or someone unintentionally leaks info, you may be legally liable for an employee identity theft that occurs. When you choose an outsourced payroll provider, they’ll have measures in place to keep data secure so you and your employees are protected.

It’s also worth noting that payroll fraud impacts 27 percent of all businesses, according to Forbes. Small businesses face double the risk as their larger counterparts in this respect. Common issues include having ghost employees on payroll and padding or falsifying hours. Payroll service providers can help protect you from embezzlement and fraud by using sophisticated software to monitor for the telltale signs.

2. Government Regulation Compliance

Different labor laws across cities and states are a major complaint for 70 percent of business owners, per Small Biz Trends survey data. With complex rules that change at every turn, it’s easy to underestimate your tax obligations. Not surprisingly, about a quarter in the Small Biz Trends survey have been taken to task by the IRS, with 15 percent being audited and 17 percent facing fines.

Stats from the American Payroll Association are a bit more grim, indicating that around 40 percent of small businesses face an average of $845 in IRS penalties annually, as reported by B2C.

On the bright side, payroll services providers have expertise in tax regulations. You can rest assured your tax filings are being handled appropriately and that withholding for things like Social Security and Medicare are accurate.

3. Save Time

Small-business owners spend nearly five hours per pay cycle just managing their payroll taxes, according to Small Biz Trends. All that calculating, filing, and paying eats away 21 days each year. Certainly, this is time better spent on all the other important aspects of your business.

Yet, this only speaks of the payroll process itself. Oftentimes, third-party payroll services will handle other HR tasks too. For example, they may help manage employee benefits and compensation packages or offer employee self-service portals so team members can monitor their pay stubs and request changes as needed. Many provide direct deposit too. With direct deposits, paychecks are automatically added to employee accounts, which saves them a trip to the bank and you the trouble of disbursing checks.

Consider all these additional time-savers when calculating the expense and benefits of working with a third-party payroll service, and you’re likely to see you’ll come out on top by a significant margin.

4. Reduce Payroll Mistakes

While up to eight percent of companies use traditional timecards, leading to errors, 82 percent of small businesses manually review their payroll processes, making in-house payroll management time-consuming. By outsourcing to third-party payroll service providers, companies gain access to professional payroll expertise. These providers streamline payroll operations, ensuring compliance with tax regulations and offering cost-effective, cloud-based solutions.

As businesses grow, the benefits of outsourcing payroll become evident, safeguarding against costly penalties and ensuring efficiency in payroll practices.

5. Recruiting Support

Ever hire seasonal or temporary employees? Or maybe do temp-to-hire programs? Sorting out the new hire details can be incredibly difficult, especially if your new hires are subject to different guidelines. An outsourced payroll company will take care of all the calculations and ensure you follow pay-related regulations, so you can grow your business confidently.

Benefits of Outsourcing Payroll for Small Businesses

For startups to established businesses, the benefits of outsourcing payroll to third-party service providers are clear. By partnering with these experts, companies free up valuable time, streamline their payroll process, and ensure data security. Such professional assistance guarantees compliance with shifting tax regulations, reducing the risk of costly penalties. These third-party payroll services provide cost-effective solutions and a team of experts equipped with cutting-edge payroll software, ensuring accuracy and timely payments. By leaving the intricate aspects of payroll in trusted hands, businesses can focus on core growth objectives.

Get Help Funding Payroll with Invoice Factoring

While third-party payroll service providers can take the headaches out of your calculations and streamline your processes, they’re not always a good solution if you’re short on cash and payday is looming. That’s where invoice factoring comes in. It gives you an immediate cash injection by turning your unpaid B2B invoices into working capital right away, so you’re not stuck waiting 60, 90, or more days for your clients to pay. To learn more, request a complimentary rate quote from Charter Capital.

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