Small and medium-sized business owners have the option to outsource many of the logistical tasks involved with running a business. Almost all outsourced service providers sell the idea of making a business easier to run by taking over some of the more mundane responsibilities, such as payroll and bookkeeping. These services are sometimes very successful with helping a small business, particularly for businesses that need an eCommerce CPA. However, outsourced financial assistance should not be accepted as beneficial to businesses without careful consideration.
One of the central administrative services available through outsourcing for small businesses is payroll management. Why? The short answer is that payroll is easy to mess up. Organizing your payroll and making sure it is error-free can be a considerable drain on your time and energy. But even if a small business owner decides to outsource payroll entirely, it’s still essential for them to learn the intricacies of how properly managed payroll works to avoid tax mishaps down the road.
Outsourced payroll service companies pitch many guarantees when it comes to managing payroll for your business. Let’s take a look at some of the reasons why you might want to avoid third-party services for payroll and bookkeeping.
Consider Internal Management When Possible
Before evaluating the options provided by outsourced payroll companies, evaluate the internal structure of your business. First, consider how many hours managing your payroll currently takes. Does keeping up with the payroll regularly prevent you from keeping up with all other aspects of your business? For small businesses with only a few employees, the time spent on payroll may not be significant enough to justify paying for these outsourced services.
Next, take responsibility for the payroll errors that have occurred in the past. Have these errors created a serious disruption within your business? Issues regarding payroll taxes are often the most severe, but in some cases, complaints regarding pay that come directly from employees are equally detrimental. If you fully understand the source of these issues, they may be easy to fix without the aid of outsourced payroll services.
Security and Shared Data
Paying for outsourced payroll services means providing all of your company’s and employees’ data with a third-party organization. Account numbers, social security numbers, and company finances are all shared with the outsourced payroll company, as well as all other information necessary for filing company taxes.
When considering a particular company for outsourced financial services, ask them how they store and secure your data. If they cannot provide a substantive answer or do not have a set data security protocol, it’s time to look elsewhere for these services. The confidentiality of your company information is critical to your success.
Disconnect between HR and Payroll
If your business has an HR specialist and outsourced payroll, there is potential for issues to come up involving the disconnect between these two aspects of your business. If the HR and payroll departments are not communicating with one another, hiring becomes even more of an extended process.
Many outsourced business services companies have numerous clients that divide their time. It can be challenging to reach the person managing your payroll regularly, which will eventually cause a problem should an urgent need arise. If an employee notifies you of a pay issue, there is an additional communication hoop to jump through before resolving the problem.
Reports May Cost Extra
Many outsourcing companies advertise their payroll reporting capabilities for your business. They also advertise support to decision-makers within a small business, who can use the reports to assess the value and cost of employee efforts. Unfortunately, payroll reporting can cost you more in many situations, with many outsourcing companies only offering basic payroll management for their base product.
Ask your potential outsourced payroll manager about reporting options and costs before signing them to the standard monthly or quarterly contract. Digital accountants that manage payroll can provide strategic insights for your business and are sometimes worth the additional cost. Clear financial reporting is very valuable when trying to improve business cash flow and profitability. However, many business owners may still find it easier to analyze their own finances to better understand them.
No Guarantee of Tax Compliance
Filing your taxes as a business is often complex, and there are many regulations and compliance requirements to meet each year. One of the major reasons business owners hire outsourced payroll assistance is to avoid the process of keeping up with shifting tax laws.
Many outsourced financial services and payroll provider companies claim tax expertise for businesses, but there is no guarantee that hiring one of these services will prevent a taxation issue. The responsibility for staying compliant with taxes and legal requirements still rests with the business owner, making it necessary to review the filed taxes each year even while hiring outsourced accountants and payroll professionals.
Conclusion- Why You Shouldn’t Outsource Your Payroll
Make sure to closely analyze the needs of your business and your business’s internal capabilities before seeking outside help with payroll and bookkeeping. Keep in mind that external payroll requires further communication, and that it may take longer to resolve any issues that occur. Sharing data with the payroll service provider may also be a hazard in terms of security.
If you are still interested in hiring outsourced payroll or an outsourced accountant, be careful when choosing your outsourced services provider. Pay close attention to the reviews and recommendations for the service provider to ensure that they are well-established and experienced enough to manage your payroll. Get straightforward answers on how they approach payroll management, generate financial reports, and contribute to business tax compliance.