Payroll Services

If you manage or are on the front lines of making key decisions for a company, payroll is always front of mind. If the company is five to ten employees, odds are cash flow is at a best-case scenario, 9 to 12 months. When we refer to cash flow, that’s cash on-hand to cover all fixed costs (rent, payroll, etc) for 9 to 12 months. If for example the amount per month that a business spends on these items is $50,000 per month, that means said business has, in cash (in a bank, hopefully), $450,000 plus.

Now, this is a good scenario for businesses of this size. A more common scenario however is businesses with only 3 or 5 months of cash. Sounds stressful, right? You bet, it is stressful, but it’s also reality and businesses of all sizes need to always focus attention on sales and marketing. These are areas that are hard to outsource. A company’s products are theirs, so relying on a third-party to sell and position a product or service in the market with the same fervor as someone in-house is not realistic. However, if there was one area one could outsource it is payroll processing.

The first major benefit - outsourcing payroll to a payroll service is an extreme time saver. Take it from someone who dealt with payroll at one point. The end of the month and the first couple days of the following month are chalk full of tedious administrative tasks (cutting checks, online transfers, calculating deductions, sending the requisite information to the relevant authorities). Having the option to outsource all of this saves an extraordinary amount of time. Second, payroll services make a whole lot less mistakes than you would. We can’t say or attest to payroll services being completely error free. What we can say though is they are quite good at calculating taxes accurately. A payroll services company is much better equipped to manage the ins and outs of payroll deductions and also ensure requisite taxes are paid on time. This is no small feat, and with the IRS penalizing businesses for payroll errors contracting a company to do this right might be a real cost saver over the long-term.

So now that we know the benefits, with every positive you invariably have a negative. The first negative of payroll services is business owners are ultimately responsible for their own affairs. If the IRS for example prosecutes the payroll company for not paying the necessary taxes on behalf of the company, guess who gets fined? It certainly isn’t the payroll services company. Another frequent negative that gets mentioned is many firms end of paying for services they don’t need. Some (certainly not all) payroll companies will offer services to businesses that they mask as “must-have’s” and next thing you know the payroll services company is snatching a large chunk of monthly expenses. This will of course increase the costs of taking on a payroll service and eventually render it useless due to its financial impact.

To be honest, the negatives associated with payroll services are rather minor compared to the upsides. But we’re not the ones deciding on this, however if we were …