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The Whys and Hows of Outsourcing Payroll

In Bloomberg Tax & Accounting's 2019 Payroll Benchmarks Survey, 69.2% of respondents said they used outside vendors to perform payroll functions, while only 30.8% said they did not outsource payroll.

Let's look at the practical and financial reasons so many companies are taking the payroll outsourcing plunge.

Payroll compliance

Payroll laws are numerous in scope, occurring at the federal, state and local levels.

Compliance depends on knowing which laws your business must follow, adhering to the rules that apply, monitoring regulatory changes, and updating your payroll policies and procedures accordingly. This can be stressful and time-consuming.

Moreover, failure to obey the rules can lead to steep fines from the government and even reputational damage to your company.

When you outsource payroll, the provider takes on many of your compliance responsibilities — giving you peace of mind and more time to focus on growing your business.    

Accurate and timely payrolls

According to a market analysis by Beroe Inc., key performance indicators for payroll outsourcing include accuracy of pay slips and timely processing of payrolls.

Further, a survey by the Workforce Institute shows that employees don't have much patience when it comes to paycheck errors, as 49% of respondents said they will look for another job after only two payroll mistakes.

Payroll outsourcing companies have experts on hand who understand the ins and outs of gross-to-net calculations — which are crucial to paycheck accuracy. Also, their job is to make sure their clients' payrolls are done on time.

Self-service features

Employees today want immediate access to payroll information and expect their employers to provide self-service options. This is likely why 73% of respondents in the Bloomberg survey said they had an employee self-service system for payroll.

Besides processing their clients' payrolls, many reputable payroll companies provide access to a self-service platform that lets employees:

  • Make basic payroll changes, such as those to their direct deposit and Form W-4.
  • Send time-off requests to their supervisor or manager.
  • View and print payroll tax documents, such as Form W-2.
  • Update personal contact information.
  • Review pay data.
  • Print pay stubs.

Disaster recovery

As demonstrated by the COVID-19 pandemic, employers should be prepared for unexpected or severe disruptions to their businesses. Credible payroll providers already have a contingency plan in place that can ensure your employees are paid on schedule during disasters and emergencies.

Cost savings

Outsourcing your payroll can save you time and money via direct and indirect ways — including by keeping your business compliant, minimizing paycheck mistakes, delivering access to self-service technology and helping you meet your payroll obligations in the face of disasters. Importantly, you can lower payroll staffing costs, as you don't have to pay wages, salaries, overtime and benefits to a full in-house team.

Though exact savings depend on various factors, the report by Beroe Inc. states that outsourcing payroll can reduce expenses by approximately 20%.

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