Whether you have one employee or hundreds, you must follow the formal procedures that go into paying them. You can perform these payroll tasks yourself, or you can outsource the process by turning it over to a professional payroll service.
No matter what type of payroll processing service you use, it’s very important to remember that you—as the business owner—are responsible for everything payroll-related. Outsourcing payroll doesn’t take away your responsibility for paying and reporting all payroll taxes on time and in full, and to pay employees exactly what they are owed.
Reasons to Outsource Payroll
Consider the cost of your time. Your job as a business owner is to run your business, not to process payroll. Trying to do payroll yourself means taking your time away from other key tasks, like finding customers or creating partnerships.
You don’t have to worry about it. A payroll processor always has someone dedicated to your business, so you don’t have to worry about making sure all employees are paid on time if you decide to take a few days off.
It’s less complicated. Payroll taxes are complex because there are several different types of taxes you must collect and pay, and many complicated forms to fill out. These include federal income tax, state income tax, FICA tax for Social Security and Medicare, and federal and state unemployment tax.
Taxes change all the time. Each year, there can be changes to tax laws, tax rates, or deadlines for submitting reports. As an individual business, it’s difficult to stay on top of all these changes to avoid fines and penalties for late payment or underpayment.
Take a look at this yearly payroll calendar to get an idea of the due dates for reporting and paying.
Tasks You Can Outsource
You can find a payroll processing service that can help you with some or all of these payroll tasks:
- Keeping payroll records, including forms and consents (usually online)
- Using amounts for pay, withholding, and deductions to create paychecks
- Sending out these paychecks to employees, usually through direct deposit
- Calculating annual wage and tax reports, Form W-2 for employees and Form 1099-MISC for non-employees
- Submitting payroll tax reports—like Form 941—and payments to the IRS and states
- Other payroll tasks like reporting and paying unemployment taxes
- Sending out payments for other deductions such as health or pension plans, wage garnishments, and non-employees
Payroll Software vs. Payroll Service
There are two basic ways a business can carry out payroll:
Option 1: You can do it yourself using payroll software. Online payroll software applications work in a similar way to tax software. They give you a handful of prompts and information, but you—or someone in your business—must do all the input. The software company can offer online support, by phone, chat, or FAQs.
Option 2: You can outsource your process by giving a payroll service the basic information on employees and letting them run payroll, send out paychecks, do all of the reporting, and sending all the payroll tax payments out.
If you’re looking to support local businesses, you can also use a local bookkeeper or an accounting service.
These businesses have people who do any or all of the tasks using payroll software. The advantage of these payroll processing services is more direct contact with a real person who can help you with issues and questions.
How Much Does a Payroll Service Cost?
Most services work on a monthly basis, charging by volume of the number of checks written, reports filed, and payments made. You can also get additional services, like 1099s and benefits processing by paying more.
For example, Patriot Payroll Software charges $10 a month for their basic service plus $4 per employee, and provides the following services:
- Free expert support
- Free payroll setup
- Free direct deposit
- Free employee portal
- Free workers’ comp integration
- Unlimited, customizable payrolls
- Printable W-2s
- Time-off accruals
For $30 a month, they will help you with W-2 forms and file and deposit your federal, state, and local taxes. They will also provide year-end tax filings.
Questions to Ask Before Outsourcing Payroll
As you talk to potential payroll services, read reviews and ask for references. Here are some questions to ask:
- How secure is your system? Have you ever had a data breach?
- How often do you update your system? Do you have backups in case of data loss or system crash?
- How do you keep up with changes in tax laws? How often do you update your data for tax changes?
- How long have you been in business?
- How do you handle customer service? Can I call and talk to a real person? How quickly do you respond to urgent requests?
- If I have to make corrections, how quickly can you make these?
- How do I know you are submitting reports and making payments before they are due? What confirmations do you send me?
If you are just starting out with payroll, take some time to read this overview of how to set up a payroll tax system. Then make a list of what you are willing to do yourself and what you want a payroll service to do.