5 Reasons to Outsource Payroll
Does the thought of doing payroll stress you out? Are you tired of drowning in paperwork? As a small business owner, you have a lot of tasks to juggle. You know payroll is crucial to get right — for both you and your employees! That’s why many small and medium-sized businesses are outsourcing payroll.
But is that the right choice for you? How do you choose a payroll service you can trust? Read on to find out the benefits of outsourcing and what to consider.
Differences between In-House Payroll and Outsourced Payroll
In-house payroll processing means that you or one of your employees handles all payroll taxes, including timesheets, source deductions, ROE’s, WSIB filings, T4’s, benefit deductions (e.g. pension contributions), and disbursing paychecks. There’s also filing taxes, taking care of employee requests, and keeping on top of the books for your accountant… and so on.
Obviously, that’s a lot of responsibility for one person, but that’s how many businesses start out. As your team grows and tax laws change, you may find yourself needing more help.
If you outsource, you rely on a third-party service provider to handle payroll tasks. They will track time entries, calculate tax withholding and deductions, and send out checks. Some providers also perform HR tasks such as employee onboarding, and time-off requests, as those intersect with payroll. Other providers will even file your payroll taxes on your behalf.
Because there are so many forms to complete and deadlines to meet, it’s important to have a dedicated payroll person. Whether they’re in-house or outsourced is up to you.
So, which is the better choice? It sounds like outsourcing payroll would be a huge relief, right? Yes, but there’s a lot to consider. Any type of outsourcing includes some risk — and potentially some hefty professional fees. Is it worth it?
How Outsourcing Payroll Can Benefit your business
If you choose an expert outsourced payroll service, you can reliably delegate your payroll tasks to them. You may only need to outsource the aspects that are challenging for your in-house team. For example, tracking all the changes in tax law and all your employees’ deductions is a full-time job in and of itself. That could be something to let an expert handle.
In any case, outsourcing can certainly make your life easier:
1. You’ll Save Time
No matter how you handle it, entering time, calculating deductions, and issuing paychecks are tedious tasks. Worse, they must be done on time and correctly, or you risk making costly errors. Errors in payroll directly affect a business’s greatest asset – their employees.
Have you heard the viral story about the payroll employee who kept messing up someone’s paycheck? The company had to pay additional compensation along with all the backpay. And let’s not forget your payroll reports, tax filing, and payments…
You have other tasks that need your attention. Spending hours per month on payroll eats into your valuable time and hurts your productivity. Therefore, outsourcing payroll to experts means your profitability will likely rise (and you’ll avoid expensive mistakes).
2. You Improve Transparency
Not only is manual payroll processing a pain, but it also introduces the risk of errors. Some businesses use manual time entries, which must then be multiplied by each employee’s hourly wage, and then have all deductions applied accurately. Excel can only do so much!
Also, having a single person responsible for this task can cause issues if employees have questions about their pay or withholding. If the employees aren’t able to see and verify their timesheets, that compounds the problem.
Many payroll services offer advanced software that makes all those calculations a breeze, as well as self-service options for employees to check their hours, time-off requests, and so on. You could upgrade your own systems, but that’s often a prohibitively expensive and time-consuming endeavour. That’s why outsourcing is an attractive choice for many businesses.
3. You’ll Ensure Accuracy
There are so many forms and records that need to align to do payroll correctly. Any discrepancies can lead to employees not being paid correctly or on time (or not at all), not to mention fines due to late payroll tax payments. There’s also the chance you could accidentally issue overpayments to employees — or even to the CRA! Either way, it’s always an awkward situation.
4. You’ll Be In Compliance
Payroll is much more than tracking time entries and sending out paychecks. In addition to reporting your payroll and paying your source deductions and your WSIB, you must complete those payments on time. For example, the tax you withhold from paychecks for the CRA must be paid quarterly or monthly — and sometimes more often, depending on the amount of money owed! The CRA is not always forgiving with its penalties if you underpay or pay late.
Depending on the size of your business, it can take many hours per week to track all those tax changes, along with shifting regulations about labour rights, workplace safety, etc. Obviously, the more you stay on top of those, the better. By outsourcing your payroll, you often gain access to expert guidance rather than playing a guessing game.
5. You’ll Gain (Cyber) Peace of Mind
It’s difficult for many small businesses to handle employee and contractor details both efficiently and safely. Your payroll person holds a lot of sensitive information, including bank account numbers, home addresses, and salaries. What would happen if cybercriminals managed to hack into your system? Or if an unscrupulous employee (or ex-employee) gained access to these details?
You also want to be sure that your records are stored safely for compliance and reporting purposes. Secure data storage is beyond the capacity of Average Joe or Jane’s desktop computer. Your IT team needs to ensure that everyone only has the access they need and that all files are backed up regularly. But if you don’t have an IT team, or if they’re busy with other tasks, you can rely on your payroll service provider to handle this.
How do I know it’s time to outsource my payroll?
If you feel confident that you’re making accurate tax payments and employee paychecks, and if it’s not a burden on your time, carry on. However, it’s worth considering if outsourcing could make things easier for you. Here are a few tell-tale signs:
- You struggle to remember to submit your WSIB and CRA payments.
- It takes you hours per month or even per week to enter all time entries and calculate paychecks.
- Your employees have various deductions, such as for healthcare benefits and retirement contributions, and it’s challenging to calculate them accurately.
- Tracking paid time-off, vacation, and other leave is cumbersome on top of your other tasks.
- You have a mix of regular employees and contractors, and you’re not sure which payments to report or which deductions apply.
- You have employees in multiple provinces and calculating their various tax rates is an additional chore.
- You want to make your payroll system more efficient but ironically can’t find time to do it.
- You often have employees complain that their timesheets or paychecks are inaccurate.
Do any of these apply to you? Don’t worry — you can solve the problem by delegating all or some of your payroll to a qualified third-party provider. Definitely outsource the payroll tasks that are most draining on your time and money!
What does it cost to outsource my payroll?
The cost of outsourcing payroll varies depending on which tasks you’re outsourcing, how many employees you have, and whether or not you need basic HR, tax, and accounting help as well. Factors such as out-of-province employees, cybersecurity, and self-service needs all factor into the cost as well.
On average, you can consider it will cost between $200 to $400 a month to outsource your payroll. As stated above, this price can differ greatly based on the complexity of your payroll, size of payroll, and frequency of your payroll.
Often, small and medium-sized businesses actually SAVE money when they outsource payroll. After all, think about all the costs you’ll avoid: fees for late payments, fines for non-compliance, and so on.
And remember, you’ll be saving time — and time is money. How much more productive and profitable would your business be if you didn’t spend hours per month on payroll? As the saying goes, you get what you pay for. Investing in a third-party payroll solution often yields a very good ROI.
Most small businesses can benefit from outsourcing their payroll. Because payroll is such an ever-changing environment, it’s very difficult for a business owner to keep up with everything. Rules and regulations such as legislated paid sick leave and minimum wage changes make it challenging, but using a dedicated outsourced payroll service means you will always be on top of these changes!
Payroll just happens to be one of those necessary evils that are just better left to the experts. And the best part is that you can boost your profitability while ensuring that your employees are paid accurately and the CRA stays off your back. It’s win–win–win!
Ready to get started with payroll outsourcing? Book a call with eGO Bookkeeping to discuss your options. Our certified payroll staff is eager to make your life easier.