Outsourced Payroll: Could It Be Right For Your Business?

Small business owners face a variety of competitive threats that they must overcome before the business can be successful. Without adequate internal processes, the issue is moot. Vendors and employees must be paid promptly if one expects to build the relationships that are necessary to obtain the best services and access to products in limited supply. However, advancements in payroll systems are commonly neglected at many companies, resulting in ineffective payment methods that increase overhead and reduce productivity.

Types Of In-House Systems

Many businesses handle payroll internally. Particularly, small businesses tend to use manual payment systems, in which a company representative manually cuts a check to each employee and supplier for each payment period or for each act of work performed. Manual payroll systems involve a significant investment in time and labor, as the company must have an employee or even the business owner verify the payee’s claim, write the check or hand over physical cash, and manually document the exchange in the company ledger.

If a dispute occurs, the employer must manually review the company ledger and the corporate accounts to identify at which point the transaction did not proceed. A clerical error can result in a large number of internal discrepancies for which the company must account. Manually identifying the correct amounts, augmenting the ledger, and providing additional funds to each employee takes a considerable amount of time and brings with it the possibility of additional errors.

Businesses must pay so many suppliers and employees on such a frequent basis that manual payroll systems quickly become impractically expensive for any growing businesses. As a result, most companies automate their payment systems. Automated in-house payroll systems vary in complexity and expense, ranging from simple desktop programs that calculate hours worked and hourly pay to multimillion-dollar ERP systems with payroll functions being only a small part of the system.

Outsourced Payroll Systems

Outsourcing a payroll system allows companies to avoid the headaches associated with maintaining an internal system while reducing implementation costs. By using an external service provider found online, such as PayWeb.ca, to implement a new payroll system, companies need not train large number of employees on the new system, shop for and test new payroll systems, or delegate the maintenance of any new infrastructure to any employees.

bagomoneyDedicated payroll service providers also ensure accuracy in payment as well as compliance with all state and federal tax laws. Compliance costs are substantial for modern industry, and outsourcing these issues to payroll service providers ensures that the business adheres to all regulations without retaining expensive legal counsel and hiring compliance officers. Reliable and prompt debits and credits will minimize the amount of time spent on addressing payroll issues as well as reducing the incidence of these issues in the first place.

Internal Payroll Drawbacks

Automated payroll systems are more efficient than conventional methods, as they allow for easier payment and auditing. However, maintaining an internal automated payroll system has a variety of issues. Businesses must purchase the necessary software and ensure its compatibility with the company’s hardware. New payroll systems can be expensive to purchase and if the new system is incompatible with the company’s legacy hardware, new hardware can drive up the cost of the system.

Once a system has been purchased, it must be integrated into the enterprise. Installing compatible new software is trivial, training employees on the new system is not. Businesses upgrading to automated systems or transitioning between systems should prepare for a brief period of difficulty as system malfunctions and clerical errors are inevitable. In some cases, employees may be resistant to the new system on the grounds that it is too complex or unnecessary. Employers must ensure that the system is implemented and follow through to ensure full compliance.

Someone must also ensure that the system is kept current and updated. Software that has not been patched for an extended period is likely to be exploited by the growing pool of electronic thieves. If the company lacks information technology professionals, to provide this maintenance and upgrading, the company must either hire an employee or task a current employee with maintaining the system. If the company is forced to hire another employee, the costs will increase; if an employee is charged with maintaining the system, the employee’s productivity will be reduced by the time spent learning his new position and performing the essential upgrades.

By outsourcing payroll, employers can ensure that each employee’s compensation arrangements are held in confidence. Discrepancies in terms of payment between employees often leads to workplace friction. However, outsourcing payroll is not right for everyone. For small businesses with few employees or highly irregular payment schedules, in-house payment structures are likely more efficient, as the costs to transition to an outsourcing system may exceed its benefit. For businesses with more than a few employees, outsourcing payroll can be a prime way to reduce overhead while streamlining internal operations.

Nadine Swayne writes this article to offer insight to business owners looking for payroll solutions. At PayWeb.ca, they offer a wide variety of services to help your company manage its internal payment systems and are dedicated to the highest levels of quality and service for their clients.

Photo credit: http://www.flickr.com/photos/jp58ws/8059642825/