Small Business Money Matters

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 Payroll Management

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 payroll management 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.

 

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Small Business Money Matters - Small Business Payroll Management Choices

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