Payroll outsourcing guide for small businesses

payroll outsourced

These costs can vary significantly depending on a number of factors, including the size of the business, the number of employees, the services being provided and the specific needs of the business. Small businesses that want comprehensive payroll services and access to retirement and health insurance benefits. He’s now been a Paychex client for more than 30 years and said he’s amazed at how simple that part of his business has become. Hiring a third-party service provider means you’ll need to share your workers’ information. Before you hire a payroll provider, make sure to have a proper DPA in place, if necessary, to avoid potential legal issues in case the outsourcing service mishandles the payroll data.

Find out more by discovering the CloudPay approach to global payroll today. With the importance of payroll within businesses growing all the time, many organizations are turning to outsourced payroll services – and it’s easy to see why. Payroll management can be complex, time-consuming, resource-intensive, and expensive. Plus, getting payroll in-house wrong can lead to severe implications ranging from financial penalties to negative employee experiences. A PEO service may come with a higher price tag than basic payroll outsourcing options.

For over a decade, she’s helped small business owners make money online. When she’s not trying out the latest tech or travel blogging with her family, you can find her curling up with a good novel. Whether you’re in real estate, retail, engineering, healthcare, law, accounting, manufacturing, information technology (IT), wholesale or any other industry, a PEO is worth considering.

Increased Focus on Core Functions

It sounds like a no-brainer, but imagine if you decide to change vendors in November. If you cancel your existing service prior to year-end, you may have trouble getting tax documents out after the first of the year. Before you change payroll services, make sure you have all of the data you need out of the old system. Besides cost, here are 13 great questions to ask when deciding to outsource payroll for small business or looking for a third-party vendor—whether a bookkeeper, payroll provider, or PEO. Local bookkeepers can cost much less than hiring a full-time employee to manage your small business payroll, which is what can make it a great option for many small business owners.

A PEO that has experience working with businesses such as yours may be more familiar with the specific HR and employment needs of your industry and may be better equipped to provide relevant services and support. These are just a few examples of the types of services that a PEO might offer. The specific services provided can vary from one PEO to another, so it’s important to carefully review the offerings of any PEO you’re considering working with to ensure that it meets the needs of your business.

The services let workers enter direct deposit information, and you connect a business bank account on the employer end, so payroll runs without you having to print and deliver checks. ASO refers to a type of outsourcing arrangement in which a business contracts with a third-party provider to handle certain administrative tasks, such as payroll, benefits and HR compliance. ASO providers do not assume co-employment responsibilities and do not become the employer of record for tax and compliance purposes.

  1. We can handle hiring, engagement, employee issues, payroll, benefits, compensation, talent, compliance and more.
  2. Before you change payroll services, make sure you have all of the data you need out of the old system.
  3. Get access to payroll for W-2 and 1099 workers, automatic tax payments and filing and an employee self-service portal for self-onboarding, documents and PTO tracking.
  4. If you can squeeze some “good to have” features as well, do so but don’t overextend yourself.
  5. Available in over 160 countries, the company offers payroll, benefits, employer of record (EOR), contractor management, independent contractor (IC) compliance and real-time business intelligence (BI) reporting.

That’s why the first thing you should consider when hiring a payroll outsourcing provider is establishing trust. Most payroll service providers stay up to date with the latest technology because it allows them to take their service to the next level and provide the best for their clients. This includes automation and AI capabilities, which allow payroll professionals to focus on optimizing your payroll system, ultimately making it more efficient and reducing human error. If your team isn’t familiar with local labor classification laws, you may be at a greater risk for misclassification. Working with a global payroll provider that has experience with international payroll laws can reduce that risk, which could otherwise lead to fines and penalties that cost hundreds of thousands of dollars.

In-house payroll employees are often overworked and overstressed because they never receive a break. Once one payroll is processed, it’s time to start over again and prepare for the next deadline. Businesses are moving away from hiring outside vendors or payroll services for payroll operations, preferring to keep these functions internal. When payroll operations required serious overhead, outsourcing made sense. Now, with the help of automation, a payroll department can be only a handful of workers and an investment in cloud computing.

Tools and service

Not having to spend long hours on administrative work affords employers the ability to focus on business growth initiatives, and improved accuracy can prevent costly penalties. In addition, full-service payroll providers that offer flexible pay options and self-service apps can help improve employee satisfaction. The only types of businesses that identify payroll management as a core function are, well, the payroll outsourcing providers themselves.

payroll outsourced

When choosing a payroll outsourcing provider, it’s important to remember what’s at stake. A good provider will make things easy for the client, but client companies shouldn’t be lured into a false sense of security. Take the time to make sure a provider is both trustworthy and experienced to minimize these inherent risks of outsourcing. In many cases, companies outsource payroll because they’ve determined it to be more cost-effective than managing payroll in-house.

Engaging a PEO will also provide you with HR services such as benefits, compliance, and risk management in addition to handling payroll processing, deductions, and reporting tasks. PEOs are suitable to businesses of all sizes as they have the flexibility and expertise to handle the different legal jurisdictions and tax laws. Payroll outsourcing costs generally depend on payroll frequency, total number of employees and the specific services that are being outsourced.

Accounting software

Based on our market research and the categories listed above, we also ranked additional criteria from customer reviews such as ease of use, any stand-out features, popularity and value for the price. For pricing, we considered whether a service offers a free trial, as well as the affordability of its lowest and highest price tiers. Companies that offer upfront pricing received higher ratings here than those that require filling out a lead capture form or making a call to a sales department. Katherine Haan, MBA is a former financial advisor-turned-writer and business coach.

As with performing payroll functions in-house, applicable taxes must be withheld by the provider before payments are made. Finally, the client shares all relevant information the provider needs to complete the payroll functions it will assume. It also includes managing information relevant to the tax process such as health insurance and workers’ compensation claims.

These features make payroll tools a step up from running payroll manually with a spreadsheet. We researched reviews from real users to gauge their opinion of each platform. This entailed ranking both the overall score from customers and the number of reviews for these scores to give the fullest picture of reality and reduce bias.

Payroll software is best for companies with an employee who will manage payroll and HR in-house. Software provides some automation, from payroll processing to filing payroll taxes, but requires review and approval from a company representative. In most cases, outsourcing payroll is low risk, but there are some pitfalls you need to avoid. If you’re not careful, you could put your employees’ confidential data at risk, incur penalties and fines for noncompliance, and waste money on inadequate payroll outsourcing services.

PEOs work by entering into a co-employment relationship with the businesses they serve. This means that the PEO becomes the employer of record for tax and compliance purposes, while the business retains control over its day-to-day operations and decision-making. The PEO handles HR tasks, such as payroll, benefits and workers’ compensation, and provides support and resources to help the business manage its employees. Paychex PEO is a good choice for small businesses that want comprehensive payroll services.