The task of managing your company's payroll can be delegated to a staff member, managed by your accountant, or outsourced to a payroll service provider-a company that contracts with your business to handle payroll details, including check generation, tax filings, and compliance with government regulations.
The following breakdown of each method's advantages and disadvantages can be used to help you decide which is right for your company.
Internal management by staff member(s)
Advantage:
- Highest level of control over payroll issues
Disadvantages:
- Requires staff expertise in multiple areas
- Greater opportunity for error
- Company is directly liable for IRS filing errors
- Actual cost is often higher than expected due to additional man-hours invested in payroll-tax preparation and filing
- Companies often reap greater value from staff member's time being devoted to core business issues
Accountant
Advantages:
- Management by financial expert
- Offers more control than payroll service provider, less than internal staff member
Disadvantages:
- May be unable to manage payroll add-ons such as 401(k) plans and direct deposit
- Often more costly than internal management or payroll services
- May take more time to prepare payroll documents than payroll service providers
Payroll Service Provider
Advantages:
- Payroll expertise: these companies are familiar with all necessary tax and regulatory issues
- May be able to provide additional services such as 401(k) and direct deposit
- Controls your payroll processing costs by setting a standard fee
- May take financial responsibility for fees and penalties resulting from payroll filing errors
Disadvantages:
- Restricted opportunities to make adjustments to payroll amounts
- One step removed from tax filing documentation
The decision to outsource or not may also come down to cost. To find out which payroll management option is most affordable, estimate the number of hours you or your employees spend calculating and preparing checks, computing and filing tax forms, and preparing additional payroll documents such as W-2s or direct deposit information.
Add to this figure the time spent correcting IRS filing errors, then multiply your total by an hourly wage that represents the value of your and your employees' time. Compare this figure to the cost of having your accountant manage payroll (based on his/her hours and fees) and to a payroll provider's fees.