3 Myths About Outsourcing Payroll

“I’m ready to outsource my payroll! Now what?”

If you recently made this statement, congratulations! As USA Today columnist Rhonda Abrams once famously put it, if you have one employee it’s time to get a payroll service. The benefits of outsourcing payroll are seemingly endless — no more bouncing the books around to employees to tackle, worrying that you might forget to file a quarterly report, or wasting time or energy figuring out finances when you could be focusing on growing your business.

However, not everyone is so quick to delegate these duties elsewhere. For as much good as a third-party service can do, there are still certain misconceptions that may make businesses wary about outsourcing this kind of confidential information, even to a trusted provider. Let’s debunk three of the most common ones.

1. Payroll, even when outsourced, is still too expensive.

This is the first myth we have to debunk because while it simply isn’t true, it’s a valid concern for many businesses on a budget. For smaller companies that are set in their ways, bookkeeping in-house may be considered to be more convenient and cost-effective.

But here’s the thing about payroll — it’s not just about writing checks. Employers need to handle additional responsibilities including printing, signing, and distributing checks, withholding employee taxes, issuing W-2 forms, paying payroll taxes, and many other tasks. Even if you’re adept at these duties, you might feel like they’re ultimately too time-consuming to tackle on your own especially if you struggle to get payments made on time. Take a moment to calculate the amount of time you spend working on payroll. If it’s too ultimately too much effort to do on your own, it may be time to outsource to a payroll service.

2. The numbers will be full of mistakes, which could lead to penalties.

Whether you run a small business with 20 employees or work alongside less than five other people, chances are one of the biggest reasons why outsourcing payroll looks unappealing is because you have to relinquish control of the books. What if the numbers you spent months on get mangled and you have to pay for the penalties? What if there’s a last minute change you’d like to make and you’re unable to?

Research providers before you decide to work together. Avoid financial mishaps early on by checking to see if the company is bonded and know that many providers will assume the risk of accuracy and legal compliance. Remember that communication is key when it comes to working with a payroll service. In addition to meeting the payroll needs of your business, you’ll have to stay in regular contact with anyone handling your account. Talk to other small business owners for recommendations with service providers they trust in the area — the more local and accessible, the better when it comes to the finances of your business.

3. Outsourcing is not secure enough or safe.

This is perhaps the hardest myth of all to debunk, particularly in the age of data breaches, but we still advocate highly in favor of the security that outsourcing offers clients. If you plan on outsourcing your payroll, the IRS recommends working with a provider that uses the EFTPS (Electronic Federal Tax Payment System). For businesses, this allows them to register on the EFTPS system for a PIN that confirms payments are being made on their behalf.

The risk of a missing payment aside, be sure to talk to the provider you’re interested in working with about how the data is secured. Typically each pay period, payroll data is either called in or emailed. Find out how the provider plans to centralize and protect your data and the kinds of servers and backup systems available for sensitive data especially.

Ultimately, as your company grows, it will require that you spend more of your time focused on other priorities. Don’t let the myths cloud your judgment — if you’ve done your homework, investing in a payroll provider will turn out to be the most strategic move you can make for your business.