What to expect from payroll as your SMB grows (and why you need to outsource)

Growing your SMB is a tough task; taking steps to scale your company can be both incredibly exciting and incredibly stressful. That’s why when certain processes and workflows get a little disorganized it’s only to be expected — everyone’s less forgiving, though, when it comes to payroll. 

Payroll is a key concern for your employees and mismanaged payroll gives the impression that you don’t respect or appreciate your staff. It could even mean the difference between an employee being happy in their role or searching for work elsewhere. 

The last thing any SMB needs is high employee turnover, especially if scaling up the business is on the table. So you need to find a solution. And that solution often comes when you outsource payroll.

Why is payroll management essential in a growing business?

In the early stages of an SMB, payroll management can be a relatively simple task with a single person in charge of bookkeeping. However as the business continues to grow, a once straightforward process can turn into an overwhelming task. That’s especially when the person in charge has other responsibilities to focus on as well as managing payroll (founder/CEOs, we’re looking at you…).

For your employees, payroll is one of — if not the — most important aspects of the business. The main incentive for any worker is the promise of financial stability. They may love the company and truly believe in what your business is trying to achieve, but without reliable pay, they can quickly become apathetic and disengaged.

For the business, payroll management is about managing costs as much as it is about maintaining a happy staff. Staffing costs are among the most expensive costs for businesses, so poorly managed payroll could differentiate a great quarter and a disastrous one. 

There are also strict regulations that need to be considered when handling payroll. Companies that are consistently late or inaccurate with paying their staff can face hefty fines — and that’s before we take into account tax filing regulations. The Internal Revenue Service reported in 2011 that one in three employers have been charged for a payroll mistake, with total penalties reaching into the billions of dollars. 

Given the ever-changing nature of tax regulations, it’s easy to make an error that can take an SMB from profit to loss. 

While outsourcing may not be right for every SMB, using a payroll service can be beneficial if your payroll changes with each pay period. It can be a time-saving and cost-effective alternative to internal processing if your employee’s hours differ from week to week, or if you have to pay payroll taxes for multiple states. 

By outsourcing your payroll, you can spend more time focusing on what really matters to your business and bringing value to your customers.

How to outsource your payroll

If you think your company can benefit from outsourcing payroll, then there’s a lot you need to consider. Outsourcing can free up time and resources within your business, but if the switch is handled badly, the consequences could be dire. 

Before heading into a discussion with a payroll company, consider which services you need, what taxes they will need to handle, and, of course, their pricing.

Outsourced payroll services

Basic services can include payroll calculation and tax obligations for every employee, check production and delivery, and management reports. The payroll company can provide payslips on a weekly, bi-weekly, monthly, or yearly basis, depending on your needs. Most companies include electronic filing as standard to ensure your business stays compliant with EFTPS regulations.

Additional services can include automatic check signatures, envelope stuffing, and direct deposits. Most payroll companies will also issue W-2 forms for an additional fee. What’s more, they can offer tie-in services that allow employees to set up automatic deductions from their paycheck to feed into their 401(k) and Section 125 mutual funds.

Depending on which payroll support service you choose, they may also be able to provide you with HR software that tracks employee benefits alongside regular payroll data.

Outsourcing tax responsibilities

Most payroll companies can file state and federal taxes for your business at little to zero extra costs. They will assume responsibility for penalties that come from filing errors, however your company may be liable for interest changes.

It’s worth noting that most payroll companies will not calculate local or city payroll taxes. So if that’s important to your business, make sure to ask the agent before jumping into an agreement.

How much it costs to outsource payroll

Not all payroll companies charge the same way. Some base their pricing on a per-employee-per-month basis with an average starting price of $0.68 per employee per month. For an SMB with 50 employees, that works out at $34 a month before additional services. Other companies can charge a base fee that differs depending on pay periods, as well as extra charges for additional services.

Pricing can be competitive and reflect market conditions, but you can save money by ensuring you know what services you actually require. It’s crucial that you understand the company’s pricing structure before entering an agreement, as some may add fees for adding and dropping employees, amending employee information, or setting up your account. 

These fees can vary dramatically from company to company.

Important questions to ask a potential payroll partner

Features

  • What does your basic service include?
  • How quickly can you re-run a payroll if there is a mistake?
  • How long does the average client stay with you?

Tax filing

  • If I use your tax filing service, do you cover the penalties and/or interest charges?
  • Do you provide filing assistance for local taxes?
  • What is the cost to file taxes for multiple states?

Charges

  • What is the cost for your service for one year, including year-end W-2 forms?
  • How long are these rates in effect? What rate increase should I expect after that?
  • If there are payroll data mistakes, how long will it take to reconcile the errors and what will it cost?

Questions to ask references

  • How responsive is the provider to your questions?
  • Have you had any problems with accuracy?
  • Have you used another payroll service? If so, why did you switch?

Buying tips for outsourced payroll agreements

Seek out a stable provider

As with any financial institution, you need to make sure the company that handles your money is strong and stable. If your chosen firm only deals with payroll, it’s good practice to check the number of clients it supports. Be wary of companies with few clients as they may offer more risk than a company supporting a few hundred clients. 

Remember: it’s highly likely that a company that goes under will take your money with it.

Switch to a qualified, trustworthy partner

Switching from internal payroll to outsourced payroll can be a rocky process. As the first paychecks come through, make sure to review them carefully. Double-check all the figures and ensure monies paid to cover tax obligations are correct. 

You’re handing a lot of responsibility over to these companies as they handle financial information for your business. So trust and reliability can’t be undervalued.

Does the payroll partner you’re considering come with accreditation and five-star reviews?

Stable and trustworthy payroll support through a PEO.

MartinoWest is here to help small- and medium-sized businesses achieve their full potential. We know the issues you’re faced with day-to-day. But as the definitive PEO experts, we also know how to solve them.

Growing a business can be an incredibly difficult task, especially in these chaotic and uncertain times. That’s why we aim to take the hassle out of HR and payroll with personalized, simple, and worry-free PEO solutions. 

Get in touch with us today, and let us take the weight of payroll off of your shoulders.

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