The Pros and Cons of Self-Service Payroll

Considering outsourcing payroll? Take a look at this list of pros and cons.

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Outsourcing payroll allows business owners to save time and money

Payroll processing can be one of the most time consuming and paper-intensive tasks a business has to manage. Not only does the process require absolute precision to guarantee that employees are paid correctly, care must be taken to ensure that federal and local taxes are paid accurately to maintain HR compliance and avoid costly penalties.

When you consider scheduling, time tracking, and all the other aspects of payroll, the amount of administrative work quickly adds up. Outsourcing payroll processing is a smart practice that saves time and ensures compliance. Working with a self-service payroll processor can make it even easier.

Outsourcing payroll processing is a smart practice that saves time and ensures compliance. Working with a self-service payroll processor can make it even easier.

The Pros

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Time savings

Hours and PTO

When it comes to saving time, outsourcing payroll shines. Employees are able to log in and either enter the hours they worked or have the service’s time clock verify they’re on the job. Workers even log in and out for breaks. Once they enter or clock the hours, the system logs them for the pay period automatically. Depending on how many employees you have, the amount of time saved in reviewing timesheets alone can be significant.

Tracking and calculating overtime can be another time time drain for payroll administrators. Staying compliant with laws (which can vary by state) regulating when employees are eligible for time-and-a-half or more can be challenging. Payroll processing services have this information baked into their systems. Whenever employees are eligible for overtime, wages automatically increase, requiring no research or time from HR staff.

For tracking available and used time off, including sick, personal, and vacation time, the system is pre-set with hours and in compliance with local governing laws. Employees are able to immediately see how much, if any, time they have available, which eliminates the need to call HR. Once employees mark the hours they’ve  used, in any category, the system automatically updates—keeping track of what’s still available for them to use. This can mean more than time saved tracking paid time off: employees allocate their PTO personally, thereby reducing errors or miscommunications.

Deductions

Tracking and deducting costs, like 401(k) deposits, benefit plan contributions, or other wage deductions is another time-draining task for manual payroll processing. Outsourced, the system is automatic. Once you enter the contributions, they deduct from the check with clear, concise breakdowns that employees can understand.

Processing paychecks

Manual payroll runs involve reading time sheets, entering the data, verifying taxes, checking for other deductions, and then finally printing and distributing checks. But it’s not over yet! There are tax deposits to make, as well. When outsourced, these tasks are not only completed, they’re completed correctly in a minimal amount of time. Business owners simply view the data and approve the payroll run while everything else automatically completes.

Cost savings

Time is valuable; for most business owners, time they take to manage payroll is time away from growing the business. If you calculate what your time is worth, or what you pay another worker to stop what they’re doing to manage payroll, you’ll see how cost-intensive the process is. While payroll processing services are not free, business owners frequently see cost savings when they compare the value of their own time away from valuable non-payroll tasks.

Experience 

For business owners, payroll is a necessary evil. No one goes into business excited about the process of running payroll weekly or bi-weekly. It’s a task that is required and that must be done correctly, but is generally not a business owner’s strength. Payroll processing is something most SMBs have to learn, and doing it only weekly or bi-weekly, can make the process prone to error. When paychecks or taxes are wrong, correcting them can be a nightmare for the employee (and the business if taxes paid are not in compliance).

Your days of needing to understand IRS and local payroll tax codes could be over.

Working with a third-party payroll provider assures experienced professionals are managing the process. As laws change, tax brackets and deductions update and these services remain current. Your days of needing to understand IRS and local payroll tax codes could be over.

Security

Nothing in the world, including the internet, is 100% secure. However, the most reliable outsourced payroll processors leverage the best available technology to keep employee and business data secure. For SMBs, keeping payroll processing secure can be a challenge. To assure you keep all employee data private, you must manage the process yourself, or work with employees you trust who understand the need for confidentiality. Even stuffing paychecks into envelopes for distribution has to be managed in private. When it comes to security, outsourcing can be a best practice.

Compliance

Compliance with the tax code is the most common requirement for business when it comes to payroll, but there may be other regulations that need adherence. Some states require businesses to provide mandatory sick pay. For these companies, payroll processors make sure to allocate and track the time.

For some workers, courts mandate wage garnishments and these can be difficult to track and manage with manual systems. Automated, third-party providers not only assure compliance with any law or court order, they’re able to reliably track what’s been used, paid, or otherwise required.

Additional services 

You may not be ready to take on the challenges of direct deposit for payroll, but your employees want it, and it does make everyone’s life easier. SMBs that use a payroll processing service offer the benefit of direct deposit to all staff members, giving them immediate access to their wages. Business owners don’t have to worry about writing checks, waiting for employees to cash them, and then reconciling bank accounts — it’s all done for them.

Integrated systems

Some payroll processing services allow businesses to integrate scheduling into the platform. This can help verify hours scheduled versus hours worked. Other systems integrations can include new hire processing for payroll and benefits elections and deductions, onboarding, automatic salary changes, including raises for salaried and hourly employees, and more.

Documentation

When it comes to documentation, payroll processing services save time, effort, and money. You can easily generate reports outlining:

  • Employees’ earnings
  • Paid taxes
  • Deductions
  • What, if anything, is outstanding

For staff members, a full picture of their earnings can be available through their smartphone. For businesses, the paperwork necessary to file or defend taxes is easily accessible and understandable.

When it comes to budgeting needs, detailed breakdowns of payroll costs are accessible. Easily determine what’s being spent today or forecast for the future with data that can be analyzed and broken down by department, location, position, or codes that can be customized.

The Cons

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Making corrections

When errors occur — and they happen to everyone — it can take a bit more time to correct. Running into the owner’s office to note a mistake and get a replacement paycheck may require a few more steps with a processing service. You won’t immediately see that a moved decimal point resulted in the employee getting one-hundredth of their pay, but these mistakes do occur from time to time. You can typically resolve them quickly with the processing service by simply verifying the correction with the business owner and making the adjustment.

Control

If you’re a control freak you might get less satisfaction reviewing timesheets online versus hand-written ones, or knowing having depositing paychecks rather than distributing them. Remember that along with relinquishing control, you’re gaining time, saving  money, and losing the headaches that go along with payroll processing.

Confidence

The most important potential downside for SMBs when it comes to payroll processing services is working with a company that is not reliable and sound. Avoid this by working with a provider that’s recognized and established nationwide to ensure your employees and business are protected.

Payroll processing is one of the first HR functions businesses outsource and it remains one of the best time and cost-saving processes a small business can leverage. If you’re still running payroll the old-fashioned way, it might be time to see what a service can offer so you can get back to running your business.

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