Payroll management is a term used to describe the preparation and processing of payroll. That includes calculating hours worked, paying employees, withholding taxes, and making tax deposits. You can manage all this internally, but many companies prefer to leave it in the hands of a payroll professional. Several reasons exist why that’s a good idea.
Why not just let the software do the work? Technology in this area has improved significantly in recent years.
Unfortunately, most payroll software needs costly regular updates. Without those, the numbers for tax withholding and deposits will be off. That could cause a ripple effect that drives employees away and causes financial distress in your business.
In this article, we will discuss the challenges of managing business payroll and the risks of attempting to handle it independently. Mistakes can be costly. They could subject you to IRS penalties or even legal actions against your company. Hiring a pro for payroll prevents tax mistakes, missed deadlines, or filing errors with important tax papers.
Know Your Employer Responsibilities
President Harry S. Truman had a sign on his desk that said, “The Buck Stops Here.” Small business owners understand this better than most.
Everything that happens in the company is the owner’s responsibility, whether you delegate it or not. That includes payroll management. The employer is held accountable for the following:
· Calculating income tax withholding
· Depositing employee tax dollars
· Paying business share of payroll taxes
· Filing tax returns for payroll
· Creating quarterly reports on withholdings and deposits
· Submitting annual reports to the Social Security Administration
The task list can be overwhelming, particularly if you add it to the already busy agenda of a day-to-day small business owner. Common mistakes include failing to pay IRS 941 payroll taxes and miscalculating deductions. Either could be costly.
Using software can help you avoid penalties, but only if the software is up to date. Tax laws and tax tables change frequently.
How Payroll Management Benefits Your Employees
Using a payroll management service ensures that your employees will get paid on time and their withholdings will be accurate. Deductions for insurance and other benefits will be made each pay cycle. W2s or 1099s will go out on time each year.
A disruption in any of these functions could lead to employee turnover. That’s not good for business.
Payroll management can save the company money. Cutting costs creates cash flow that can be used to incentivize employees. That cash can manifest in the form of monthly bonuses or annual raises. There’s also a big opportunity cost savings in using payroll management. You’ll be freed up to spend more time growing and scaling your company.
Happy employees are productive employees. To keep employees happy, make sure to pay them promptly. Additionally, provide bonuses for good work and for staying with the company. Offering direct deposit can also help by eliminating the need for employees to go to the bank on Fridays. These can all be provided by a payroll management service. Think of it as an investment, not an expense.
Human Resources and Data Security
Your human resources department should not manage your payroll. That’s a conflict of interest.
HR is there to accommodate and advocate for your employees. That includes making sure workers are fairly treated and get the benefits the company claims they offer. Payroll disputes can be initiated with HR, but they should be resolved elsewhere.
Every company is different. Startups and smaller companies often combine payroll and HR into one department for “convenience” sake. That may work with half a dozen employees. It won’t scale when you grow. Most businesses start to look at outsourcing payroll and possibly even HR when the employee count reaches double digits.
Data security is another issue. Human resource departments ask for specific personal information when they process a new employee. That includes name, address, phone number, and social security number.
This personally identifiable information (PII) is what identity thieves search for. Someone can steal it internally or hack it from your system.
Setting up new employees with an outsourced payroll manager puts their data behind a more secure firewall. If your payroll manager is a CPA, they will use secure encrypted systems for any electronic transfer of data. That includes deposits into employee tax withholding accounts and quarterly business tax deposits.
Outsourcing versus Hiring an Internal Payroll Manager
Some companies prefer to hire a payroll manager to work in-house. That segregates the payroll responsibilities, taking them away from the owner, but it could still be problematic.
What happens if that person chooses to move on? They take the knowledge of your payroll system with them. Training someone new to manage that will be costly.
In-house employees are your responsibility. If they make a mistake, your company is liable for it. Outsourcing payroll services shifts that accountability. The service assumes responsibility for the accuracy and timeliness of your payroll.
Mistakes that cost your firm money are less likely to occur. That should reduce your legal and regulatory expenses.
Having an accounting firm handle payroll service takes this to another level. You’ll be relying on a certified professional bound by specific legal and moral standards. Your CPA manages your taxes, financial reports, and ensures correct payroll processing. Here at D&M Accounting, we offer the following:
- Payroll Preparation with no setup charges
- Direct Deposit of Payroll Checks
- Corporation Payroll Services
- Out-of-State Payroll and Paycheck Services
- Electronic Tax Payments
Our firm also provides accounts payable solutions, bank reconciliations, financial analysis and projections, and financial statement preparation. Outsourcing these along with your payroll management removes items from your to-do list and frees you up to run your business. Give us a call today to learn more or go to our Contact Page to book an appointment.
