Payroll is a big part of any business and should not be considered lightly. Doing it right keeps employees happy and protects your business from being out of compliance with state and federal laws. Many companies outsource all or part of their payroll duties to a service or provider, while others handle it in-house, using their own staff and resources. Below, we cover the seven most important factors to consider—from budget to recordkeeping and security to technical assistance—before deciding which is best for your business.
Interested in a personalized recommendation based on your company size, growth plans, and other criteria? Take the quiz below to find out.
What’s the Difference Between In-house Payroll vs Outsourced Payroll
Hiring a payroll service may seem like a greater expense, but when considering in-house payroll processing vs outsourcing, take everything into account. When making comparisons, be sure you divide the expenses by paycheck or pay run so that you’re comparing apples to apples.
2. Time Tracking
If you have hourly employees, one of your most important payroll duties is keeping an accurate account of hours worked per pay period. This affects overtime, paid time off (PTO), and paycheck calculations.
3. Paycheck Calculations, Taxes & Other Withholdings
When calculating paychecks, you may need to figure out more than simple salaries. Commissions, tips, and bonuses add to a person’s paycheck and should be taxed accordingly; you must factor this into your payroll calculations. You must also calculate how much you must withhold for taxes, benefits, and other liabilities. It’s also important to file and pay federal taxes on time—some states and local areas have tax filing requirements too.
4. Payroll Payment Options
There is a growing trend of employees wanting to be paid by direct deposit or payroll card if they don’t have a bank account. Printed checks are still an option, although not as popular.
Other payment options include PayPal, Venmo, and other online payment services; we caution against using payment services like this for payroll, though, because they don’t withhold taxes and benefits for you like payroll software. As your business grows, this process will make it hard to track your payroll liabilities.
5. Payroll Recordkeeping & Security
When processing payroll, security is a big consideration. You’re handling sensitive information, like employee Social Security numbers, addresses, earnings data, etc., which you’re required to keep on file for at least three years.
6. Payroll Expertise & Technical Assistance
There are a lot of moving parts to payroll, with rules that must be followed if you don’t want to deal with fines, low employee morale, or worse. If you opt for in-house payroll vs outsourcing, you’ll need to be able to resolve any issues or questions you have on your own, including technical ones. With an outsourced payroll solution, you may have access to certified HR experts who will answer your questions quickly.
7. Year-end Payroll Tax Forms
Payroll is more than ensuring your employees get paid. At the end of the year, you need to prepare and distribute W-2 forms to all of your employees so they can file their taxes. Federal law stipulates you must send the form by Jan. 31 of the following year. If you worked with any contractors and paid them $600 or more during the year, you’ll need to send them the Form 1099. You don’t have to pay taxes for them, but you do need to report their earnings.
The trade-off between in-house payroll vs. outsourcing comes down to whether you want to pay for the convenience and expertise of a payroll service or maintain control of all payroll aspects by doing it yourself. Regardless of which you choose, the most important thing is that it gets done right. After all, you are dealing with your workers’ livelihoods. Not to mention, a poorly done payroll can put you in violation of taxes or employment regulations, resulting in penalties.
If you want to try an outsourced payroll solution with solid pay processing and HR solutions, consider Gusto. It handles payroll tax payments and filings for you, and even lets you run payroll as many times as you need in a month without having to pay extra. Basic to advanced HR tools are also available to help you hire and manage employees with ease. Sign up for a plan today.