Category: Accounting

Should You Manage Your Own Payroll Or Outsource?

Payroll should be much more than a line item on your quarterly financial report; it represents the way your company keeps promises. If you take out the wrong amount for taxes and benefits or file payments late, you run the risk of losing your employee’s trust in addition to violating regulations that could come with expensive consequences.

The intricacies of the payroll process lead many small companies to consider outsourcing. Business owners quickly outgrow the stage where they can devote hours to payroll every other week and ignoring more imminent business needs and operations. Deciding whether to manage your own payroll or outsource depends a lot on how much time, knowledge, and money you’re willing to spend.

This article is designed to provide a better understanding of your options, but you’ll still need to do some soul-searching and make a few difficult decisions on your own.

Option 1: DIY

Think of this option as your bare-bones paper and pencil or spreadsheet option. It’s not going to cost much on the front end, but you may go crazy trying to learn and track everything.

Time

You will spend significant amounts of time working on payroll every week with any option, but doing it yourself will take the most time. When you DIY, you’ll spend more time adding up employee hours, calculating taxes, writing/printing checks, and filing.

Knowledge

This option only works if you spend time familiarizing yourself with the tax codes and benefits procedures. Also take into account financial factors regarding hours, overtime, and 401k contributions, not to mention bonuses and sales commissions.

Money

This is the lowest-cost option, if you don’t include the opportunity cost of a longer process. You save money by handling everything yourself, probably on a spreadsheet.

Only consider a DIY payroll system if you are time-rich and revenue-poor. If you have a small staff, an uncomplicated payment structure without a lot of benefits, or lots of extra time to bring the information together, go for it. The opportunity-cost here can be expensive, especially for small business owners with tight schedules.

Option 2: DIY + Payroll Software

Hopefully you already use some sort of software to collect employee time cards and manage your accounting. Many of these options offer payroll processing for an additional fee per employee, with customer support. If your current vendor does not offer payroll, you might consider a standalone solution.

Time

You’ll still need to manually enter or check your numbers to make sure they’re correct, but payroll software will automate many of the more tedious aspects, saving you time and headaches. Most payroll programs remember changes and settings you put in place from pay period to pay period, so you can “set it and forget it” for the most part. Many systems also offer electronic filing, which means you can pay your taxes and do all your deductions from the same interface you’re already using.

Knowledge

Payroll customer support specialists don’t just fix bugs and answer questions. They’ll also keep you from messing up your payroll, because the more you mess up, the less you want to use their software in the future, and the more likely you are to give up and pay an outside firm. If your vendor provides trained payroll experts as a resource, use them.

Again, running a payroll program in-house will take a lot of learning, and you’re going to need to invest plenty of time in learning how to use the software, plus general accounting principles that apply to your payroll.

Money

This is the least expensive option in terms of time and money, especially if you choose a lighter, cloud-based option. Calculate the expense of a perpetual software license or a monthly subscription, and possibly customer support. Check the terms of service carefully, as many payroll software options require a fee per-employee. If you decide to hire an in-house payroll specialist to manage the process, you’ll need to factor in that employee’s hourly or salaried wage, of course.

Buying a payroll software is usually the best option for most small business owners who need to spend more time growing their business. If your business is more established, you can hire an employee who will take care of the administrative work.

Option 3: Outsource

Companies that have grown quickly or have minimal internal accounting expertise may find that outsourcing solves a lot of problems. While this option does take careful planning and follow-up with the payroll professional or agency, many companies outsource to simplify their processes and many end up reducing overhead.

Time

This option will save you lots of time, as you’ll only need to sign off on the final totals each pay period.

Knowledge

You will want to have a general knowledge of the accounting ramifications of payroll outsourcing before you choose a provider. Pay attention to location and experience when choosing an outsourced payroll service; these factors can impact the level or ROI you do or don’t achieve. You want an accountant who is familiar with your state’s tax code and your company’s industry. Deductions and overtime also vary from industry to industry, so it’s important for both you and the accountant to invest some time in getting to know these.

Money

Contract for savings. A really good accountant will be able to tell you how they’ve helped other companies run more efficiently or save money. Ask for specific stories from the accounting firm or individual. While a payroll/accounting contract will cost you significantly more than the other options here, the overall savings of not getting audited can pay dividends.

If you don’t have enough time or knowledge of accounting to go it alone, but you have the funds to pay for an expert, outsourcing may be a good option. A good payroll provider will:

• Make sure your tax filings are correct and on time
• Make sure your employees are paid correctly and on time
• Explain any complications or inconsistencies

Whether you manage your own payroll or outsource to an accountant, you’re going to need a centralized system for managing all of your time, pay, benefits, and tax information. This can be as basic as a spreadsheet (which will still be pretty complicated and error-prone) or as advanced as a fully integrated accounting/ERP system. If you can’t afford to outsource your payroll, consider a time clock app and a stand alone accounting solution to simplify your process.

How should I run my payroll?

Though it is possible to perform payroll yourself with low-cost software, or hire someone to do it in-house, this can have disadvantages. Payroll can be onerous for a non-specialist to handle, leading to wasted time and potential mistakes. Similarly, if payroll is the sole responsibility of someone on your staff, you will have to work out what to do when they are off sick or on annual leave.

If you have a very small number of staff (say, five or fewer) and feel confident managing it yourself, this may be more cost effective. For a larger organisation, however, an outsourced payroll function may be preferable. The cost of payroll is relatively low for the level of security it provides, and it can free you up to grow at the pace you want. Be sure to choose a reputable accountant (beware of ultra-low cost online services as these may fall foul of the PAYE regulations). Payroll may well be included in the wide range of services that your accountant can provide.

What do you need to have before running manual payroll?

Okay, you’re finally ready to run payroll! But before you do, it’s helpful to have a few things handy.

• Employee’s W-4: You’ll use this to reference your employee’s withholding allowance, which impacts how much taxes you’ll withhold.
• Federal payroll tax withholding tables: The withholding tables are located in Publication 15-T.
• State or local payroll tax withholding rates: If you’re required to withhold state or local income tax, then you’ll also need your state’s tax tables or withholding rates.

Payroll checklist

Now that you know the basics, it’s time to set up payroll. Depending on your business, you’ll need most of the information on this checklist to complete the paperwork and pay your new hire. Your employee will have to provide some information on a Form W-4 and direct deposit request form. The rest will come from your records or federal and state agencies.

This checklist can help you prepare all the necessary information to run payroll successfully. Here’s an overview of the items you’ll want to prepare:

• Company details, including contact and tax information
• Employee details, including personal information, earnings, benefits and deductions, and applicable direct deposit information
• Tax details like your Federal Employer Identification Number (FEIN) and deposit schedule
• Bank details, including account information and the principal officer’s Social Security number
• E-signatures from the principal officer
• Prior payroll information, including previous payroll tax payments made during the year

On or before your employees’ payday

Every time you pay your employees, use your payroll software to:

• Record their pay – include their salary or wages and any other pay.

• Calculate deductions from their pay, like tax and National Insurance.

• Calculate the employer’s National Insurance contribution that you’ll need to pay on their earnings above £183 a week.

• Produce payslips for each employee (you can use different software if yours does not have this feature).

• Report their pay and deductions to HMRC in a Full Payment Submission (FPS).

If you pay an employee less than £120 a week, you usually only need to record and report their pay (unless they have another job or receive a pension).

Payroll Services

My Paycheck

This section lists your employee ID#, Pay Group, and if you are eligible (non-exempt) for overtime or not eligible (exempt).  It also lists your Business Unit.

Pay Period Begin and End Dates list the time period for which you are being paid. Biweekly pay is issued two weeks after the pay period end date.  Check Number is displayed for all payments, but is only utilized by employees who are receiving a paper check.  Otherwise, it is an internal tracking number for Direct Deposits. Check date is the date of payday.

The Tax Data section includes your tax withholding elections for Federal and State tax.  This includes your marital tax filing status, the number of allowances you have elected, and any additional tax amounts you requested to be withheld (defaulted values are Single with 0 allowances).  Your work locality is displayed here as well (resident and school district localities will also display if elected). 

The Hours and Earnings section lists your earnings information by type for the Current Pay Period and Year-to-Date.  Rate, Hours, and Earnings are displayed. Earnings types include, but are not limited to:

Regular Earnings

Paid Leave (including sick leave, vacation and family leave)

Other Earnings (such as Overtime, Supplemental Compensation, Off Duty, Staff Awards and Bonus pay)

Fringe Benefits such as Educational Assistance, Tips, Vehicle Reporting, Taxable Gross Income (TGI) which includes Gift Cards, and Athletic Activities you have received from the University which the IRS regards as taxable income.  The value of these benefits are added to your earnings and taxes are calculated on them, but they are not added to your net pay as you have already received the benefit.

Retroactive payments

Adjustments (which can be a positive or negative amount, depending upon the adjustment being made).

The Taxes section is an itemization of the taxes that have been withheld for the Current Pay Period and/or Year-to-Date.  These can include Federal, State, School District, Local, and FICA Medicare Hospitalization Insurance Tax.

Before-Tax Deductions are subtracted from your earnings before taxes are calculated and subtracted.  Deductions and amounts are listed for the Current Pay Period and Year-to-Date.  Examples of Before-tax deductions include medical, dental and vision premiums, retirement contributions for the Alternative Retirement Plan (ARP), Public Employees Retirement System (PERS) or State Teachers Retirement System (STRS), Before-tax retirement service credit purchases, Flexible Spending Account contributions and Parking Fees. See Deductions and Mandatory Garnishments for additional information.

After-Tax Deductions are subtracted from your earnings after the Before-Tax Deductions and taxes have been subtracted.  Deductions and amounts are listed for the Current Pay Period and Year-to-Date.  Examples of After-tax deductions include donations to eligible charitable organizations, union dues, Child Support withholding and retirement service credit purchases. See Deductions and Mandatory Garnishments for more information.

The Employer-Paid Benefits section shows you the University’s cost for your benefits.  Costs are listed for the Current Pay Period and Year-to-Date.  These are NOT deducted from your earnings.  For employees with a taxable amount of Group Term Life Insurance (GTLI), it is displayed in this box as Group Life and is added to your taxable gross income.

This summary section shows the Current Pay Period and Year-to-Date amounts for Total Gross Pay, Federal Taxable Gross Pay, Total Taxes withheld, Total Deductions withheld, and Total Net Pay. Total Gross may not match the Total Earnings in Box 4 on your paystub due to taxable fringe benefits.

Net pay is the balance of your pay remaining after taxes and deductions are withheld.  It is also referred to as your “take-home” pay.

This section displays Current and Year-to-Date vacation, sick time, compensatory time and military leave balances.  All employees will have 176 hours of military time listed initially, but only service members on active duty may use it.  Wexner Medical Center employees will not have their balances displayed here, instead, they will need to login to OneSource.

The Net Pay Distribution section displays the method in which you receive your pay.  If you are enrolled in direct deposit, the account type, name of the financial institution, and the last four (4) digits of the account number are displayed, as well as the amount deposited into your account/s.  If you receive a paper check, the check number (also seen in Box 2) will be displayed and indicate Issue Chk.

QUESTIONS TO ASK WHEN CHOOSING A PAYROLL SERVICE PROVIDER

As a small or startup business professional, payroll might seem like the last logistic you’d like to figure out. Your first crucial human resources investment should be in tools to get compensation right, but after that it makes sense to take a look at automating other HR processes, such as payroll. Learning how to file business taxes and payroll paperwork might not be your idea of time well spent, so hiring a payroll provider could be a strategic option.

Most providers offer relatively inexpensive services for small businesses, and make your business operations that much easier. Here are some important questions to ask your payroll service provider to gain a clear understanding of their services and costs.

What services are included, and what are not?

Many payroll service providers offer a variety of services besides simple payroll and tax accounting. You can outsource your entire HR department if you find that administrative work is too time-consuming for your company to do on its own. Be sure you know what specific services you are signing up for, and what they are not expected to cover for you.

Can I see a sample

check stub?

Examining a sample check stub provided by your payroll

company will help you to understand how their services stack up when it comes down to the important details. If you receive the sample stub and can’t sort out payments from deductions, for example, then you they might not be the best option for you.

Payroll: Basics, process & more

Payroll mistakes can happen faster than you think. For a moment, think about the employees for whom monthly salary is the only source of income. Imagine what if the salary is not paid accurately or there is a delay in releasing salary. Such irregularities can take a toll on the morale of the employees and ultimately affect the business productivity.

While ensuring accurate and timely payment of salary is important, adhering to the various laws and regulations such as labor law, PF, PT and other statutory compliance is also critical. Non-adherence with these laws can attract serious legal and financial consequences.

To make sure that your employees are happy and you are law compliant, you need to have a proper understanding of what payroll is and how to run payroll effectively. We will start with the basics of payroll.

Payroll is a list of employees who get paid by the company. Payroll also refers to the total amount of money employer pays to the employees

As a business function, it involves:

Developing organization pay policy including flexible benefits, leave encashment policy, etc.

Defining payslip components like basic, variable pay, HRA, and LTA

Gathering other payroll inputs (e.g., organization’s food vendor may supply information about the amount to be recovered from the employees for meals consumed)

The actual calculation of gross salary, statutory as well as non-statutory deductions, and arriving at the net pay

Releasing employee salary

Depositing dues like TDS, PF, etc. with appropriate authorities and filing returns

LOOKING FOR PAYROLL SERVICES? HERE ARE THINGS TO CONSIDER

One of the most important parts of owning a business is payroll. It’s can also be very costly if not done correctly. In 2013 alone, the IRS issued $4.5 billion dollars in penalties to businesses who incorrectly calculated their payroll taxes. Not only that, but there are also varying salaries, shift differentials, benefit contributions, and many other factors to take into consideration when paying employees. It can be overwhelming for even the smallest of companies.

Does the service do everything I need it to do?

Because there is more to payroll than just cutting checks, look for a solution that consolidates your payroll, HR, workers’ comp, health benefits, and 401k into a single human capital management system. At Payroll & Benefit Solutions, we provide a total HCM system on a single software platform that allows you to manage all aspects of your workers’ employment from on-boarding to separation.

What kind of customer service can I expect?

Businesses run at all hours and so should your payroll provider. Because questions and issues can come up at any time, look for a company that offers around the clock support. It’s also worth looking for a company that provides Single-Point-of-Contact Support. Save yourself time and hassle with dedicated support who knows your story rather than starting from the beginning with someone new every time you reach out. Payroll & Benefit Solutions provides every business with a dedicated account manager that can assist you with all of your needs and questions.

Is their technology in step with current trends?

Technology is always changing, and you need a payroll provider who is on top of the latest trends. There are more options to getting money to employees these days. Physical checks, direct deposit, and reloadable debit cards are all options to consider when researching companies. In addition to that, you need to look into how user friendly their software is. Cloud-based options make it easy for you and your employees to keep track of and update important information from any internet connected computer instead of submitting requests that can take days to process.

How safe will my business’ and my employees’ information be?

Sharing sensitive data with an outside company can be scary. Breaches and crashes have been in the news more often so it’s imperative you look in to how your data is stored. Look for a company who can provide round-the-clock security and has a comprehensive disaster recovery system in place.

What To Ask When Choosing A Payroll Provider

Making the decision to outsource a facet of your business can be one of the most valuable and beneficial decisions you make.

Before you approach a payroll service provider, make sure your own house is in order. Consider the following to get an idea of your own needs and requirements

How complex is my payroll?

Make sure you have a full understanding of all the elements that go into your payroll runs before you approach a third party provider. You may need to pay colleagues located internationally, for example, that some third parties cannot accommodate.

What kind of payroll service do I need?

Payroll outsourcing commonly falls into one of two kinds. Depending on your needs and business structure, you may need more or less control over the process.

How secure is my payroll data in-house?

If you find your security lacking, you can opt to move your payroll data into the security of your third party provider. Make sure they have accreditations such as ISO 27001, which show they take security seriously.