The Top Six Reasons Why Small Businesses Should Outsource Their Payroll
A lot of business owners aren’t experts in accounting or have training or experience in running their own payroll. Payroll processing can be challenging and confusing to small business owners, and the fact that the IRS can impose penalties if not filed correctly makes payroll processing somewhat intimidating. Because of this, most small Payroll, business owners leave payroll processing to experts -either by outsourcing payroll, or processing it in-house (also known as traditional payroll).
- Outsourcing Your Payroll is More Cost Effective
If a business owner uses a certified public accountant (CPA) to perform in-house payroll processing, costs could be anywhere between $260 and $480 per payroll run -not per month, but each time payroll is run.
For in-house payroll processing, using a CPA is the best way for having your payroll done correctly because certified public accountants are specially trained in accounting and payroll procedures. However, certified public accountants charge between $65 and $120 per hour and at approximately 4 hours per payroll processing run, the cost can be quite substantial. And if your business runs payroll bi-weekly or weekly, you’ll double or even quadruple this amount. Even without a business degree, everyone knows that the lower your expenses are, the quicker you can become a profitable owner.
Outsourcing your payroll can give you all the benefits and accuracy of having a CPA do your payroll, but will run you at a fraction of the cost. It’s the best of both worlds; easy, accurate, and cost effective. Outsourced payroll can save you thousands of dollars per year.
So how much can you really save? Let’s compare how much it would cost for Small Business Inc. to run payroll for its four employees once a month. Just to be conservative, we’ll use $65 per hour to estimate the traditional in-house payroll cost –the low end per hour cost for a CPA.
Base price of $44.95 per payroll run + $1.85 per employee = $52.35
[$44.95 + ($1.85 x 4)]
Traditional In-house Payroll
Four hours at $65 per hour = $260
Outsourcing payroll saves Small Business Inc. $207.65 per month.
- Outsourced Payroll Helps Small Business Owners Avoid IRS Penalties
So what happens if you can’t afford a CPA and you decide to try your hand at calculating, paying, and filings your own small business payroll? Because of the complexity and ever changing payroll laws, it’s easy to make mistakes.
Each year, approximately 40% of small business owners are penalized by the IRS for paying or filing their payroll taxes incorrectly. That’s a pretty high percentage, and at approximately $850 a year in penalties, doing your own small business payroll processing might not be as cost effective as if you had a specialist do it for you. Payroll outsourcing companies such as Online Business Payroll automatically calculates, pays, and files your small business payroll taxes for you. Because of the automated process, you’ll never be late or miss a payment or filing.
- Outsourced Payroll is Easy
Payroll processing done through an outsourced small business payroll service is easy to use. Although setting up your employees could take a few minutes, the actual payroll run can be done in just a few minutes.
Just log into your outsourced payroll service’s secure online portal and enter in the hours each employee worked during the pay period. After you enter in your employees’ hours, review the information, and click submit. Your payroll is done.
- Outsourced Payroll Takes Care of W-2 and 1099 Forms for You
At the end of the year, small business owners must give their employees either a W-2 form or a 1099 form by January 31st of the following year. W-2s are forms that let employees know how much money they earned as well as how much federal, state, and local taxes were withheld during the year. Form 1099 is for independent contractors who you paid more than $600 to during the year.
Not only do you need to give these forms to your employees and independent contractors, but you also have to file certain forms with the IRS. Again, if you don’t know what you’re doing, this could cost you in IRS penalties.
Outsourced payroll companies keep track of this information and file it for you. At paperless companies such as Online Business Payroll, small business owners can print W-2s and 1099 forms for their employees right on the spot. Small business owners are able to get tax forms to their employees faster by being able to print these documents for them, rather than employees waiting for their tax forms to arrive in the mail.
- Outsourcing Payroll Services Let You Maintain Control
Most outsource payroll services, allow you to maintain control over your payroll while taking care of the tough payroll tax calculations in the background. Outsourcing your payroll is a beneficial relationship because it allows you to stay in compliance with tax laws, but also allows you to focus on your business instead of trying to become an expert in payroll processing.
Entering your payroll information online allows for you to maintain control of your payroll processing and helps eliminate double entries or typing mistakes often associated with calling or faxing in your payroll information to a customer representative. You enter it, you review it, you approve it –you’re always in control of your small business payroll processing.