Small Business Services

New to Payroll-Processing? Your Options

It doesn’t matter whether you have one employee or one dozen or one hundred. Payroll-processing is a time-consuming, complex procedure.

A little over a century ago, employers just sat down and wrote checks out to their staff for what was owed. Then along came the U.S. income tax. Social Security and Medicare. Health insurance. IRAs and 401(k)s. Sick time and vacation time. Disability and worker’s compensation.

Getting an employee’s hourly rate or salary right is just the beginning. As an employer, you have bigger fish to fry. And fines and penalties to face if you don’t manage the myriad taxes and other withholdings accurately.

A Risky Choice

If you’re planning to attempt payroll using Excel and a lot of paper, you’re in for a wild ride. The initial setup will be brutal. And payroll runs are rarely identical. Hourly employees work a different schedule, maybe even adding overtime. Workers take holidays and alter their number of exemptions and make changes in their retirement plans.

Unless you’re a financial professional yourself (and even then), manual payroll is a bad idea. You’ll put in a lot of hours every payday and lose time desperately needed for other work.

Easier, But Pricier

Then there are payroll services, companies that live to process payroll. You’ll work with a specialist to get everything set up in the beginning, and then submit hours, exceptions, additions, etc. prior to every payday. This is certainly preferable to manual payroll, but you’ll still spend a lot of time sweating the details for every pay run.

Hire a well-known name in this space, and you may be paying more than you’re comfortable with. Put your trust in an unknown quantity, and you may pay less, but you’ll worry more.

Do-It-Yourself Software

If you know something about payroll (and/or are willing to spend a lot of time learning) and you’re comfortable working with financial software, this may be a reasonable path for you.

Small businesses have multiple options when it comes to desktop-based accounting software or web-based (residing in the “cloud”) applications. Many of these solutions have integrated payroll features. The advantage here is that you have an all-in-one system. Your payroll data intersects with other elements of the application where it’s necessary, and numbers fly back and forth seamlessly.

Small business accounting systems that have built-in payroll often come equipped with elaborate setup tools that walk you through the process of creating records for employees and documenting relationships with taxing agencies, benefits providers, and financial institutions. This startup procedure is often the most onerous step in your ongoing payroll journey. Once completed, it’s usually fairly easy to facilitate payroll runs and print checks or orchestrate direct deposits.

Some accounting applications do not have these built-in connections, but offer integration with standalone payroll software or websites. Sometimes this works fine, but your mileage may vary.

Outsourcing to a Pro

Your fourth – and for some small businesses, the best – option is to outsource your payroll to a CPA firm or financial services specialist. There are numerous advantages to this approach, including:

  • Familiarity. When you outsource your company’s financial management to a professional firm, it will take the time to understand your company’s comprehensive accounting needs. Payroll services do payroll. DIY software depends on your input to get it right. An accounting firm will see your payroll as one element of a complete financial picture, and it will understand how the pieces fit together – and provide counsel on your fiscal situation.
  • Accuracy. This goes without saying. CPAs are tested, certified, and expected to complete ongoing education for as long as they are working with clients. They live to see the numbers come out right.
  • Accessibility. When you have a problem with DIY software and call the software company, its representatives will be able to troubleshoot a software problem, but they may or may not be able to solve your very specific tax-related bottleneck. CPA firms know you. They expect to hear from you sometimes. Their availability is part of the package.

Being responsible for your company’s payroll means far more than just producing checks every two weeks. When you consider that employee tax withholding and benefits represent your employees’ contracts with taxing agencies, their ability to get medical treatment, their financial present and future, you’ll want to consider your payroll-processing options carefully.

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