A number of customers have asked me which business function is the least risky to outsource. My answer is always outsourcing payroll. In most cases, these companies want to ease themselves into the world of outsourcing, but not go full tilt with outsourcing a vital business function that could put their operations at risk. Is outsourcing payroll that business function that all small businesses should outsource? It is! Now, what can you expect from outsourcing your company’s payroll?
Keys to Outsourcing Payroll
To be clear, I don’t mean to imply that payroll management isn’t important. After all, if your employees aren’t paid on time, you’ll be hard pressed to find a more serious issue! Therefore, payroll management is extremely important. However, it’s one function that most human resources departments are more than happy to let go. Since outsourcing sometimes puts employees on the defensive, outsourcing payroll doesn’t have to include outsourcing the job itself. It could very easily imply outsourcing the function of payroll management, freeing up valuable time and allowing the human resource department to concentrate on other responsibilities. In this case, the decision to outsource doesn’t have to be a confrontational issue.
Most companies have pretty much done away with manual payroll processes. However, even today I come across the company that still relies upon manual processes. If your company still uses manual processes, stop! They are time-consuming, problematic and the reason why more than 50% of companies are penalized in the US for late or incorrect tax filings. So, the question remains, what should you look for when deciding to outsource your payroll?
1. Look for a Guarantee on Late or Incorrect Filings
We’ll start off our list with the most important criteria. If your company is going to outsource payroll, the company you choose must be able to back up its performance. This means they have to provide a guarantee that any fees or penalties for incorrect or late IRS filings will immediately be reimbursed. This is a prerequisite to moving forward. If your company chooses to use a payroll management software program, with online support, then this is likely not going to be possible. However, most payroll software programs are simple and easy to use. They allow companies to fill in a couple of criteria in order to complete their employees' W-2 forms.
2. Look for Compensation Experts
Managing a company’s payroll involves far more than merely making sure the outsourcing firm allows for direct deposit of an employee’s pay. It means securing the services of a company that is considered an expert in compensation management. The best payroll outsourcing companies bring a vast array of tools, metrics and analytics to the table. Since your company likely has a number of different positions, requiring different compensation structures, you’ll need a company with the ability to manage all facets of your employees’ bonus, commission and profit sharing plans – if that’s what your business offers.
3. Relevant Experience
In this case, your company needs transferable experience. This could be experience in the same market, industry or in servicing a similar business model. Look for those enterprises with a reputation for performance within your industry, or across multiple industries. Check with your consumer advocacy group and ensure the company has a solid reputation on service. Check on service & support and make sure the outsourcing firm provides a guarantee on security and information transfer. You can not afford to have any pertinent or proprietary business information to be released. In this case, you want a payroll outsourcing company that doesn’t make mistakes.
4. Look for Growth and Partnership
As your business grows, so too does your needs. Look for payroll processing companies that have the ability to grow as your company does. The last thing you want is to have to continually change firms – unless of course you’re unhappy with the service provided. When it comes to partnership, keep the doors open on smaller service providers where your company could become a priority in their eyes. There is something to be said for smaller enterprises who are hungry for business, and willing to accommodate. They are also more inclined to be price competitive and offer a solid reference point on pricing.
Payroll outsourcing allows small businesses to reduce expenditures, avoid the costs of late and incorrect tax filings, and allows small businesses to venture into outsourcing without compromising too vital a business process. The benefits extend well beyond just reducing costs and freeing up valuable resources. Additional benefits include less incidence of embezzlement and less risk of employees gaining access to information pertaining to compensation of other employees – which can occur with manual processes.
Outsourcing payroll allows businesses to assume a position of power. If the outsourcer doesn’t meet the desired cost reduction goals, or doesn’t do a good enough job of managing the responsibility, then there are plenty of other firms that will. Last but not least, payroll processing is the ideal first step to outsourcing additional business operations.
The above video shows how to compare the costs of financing with a bank and financing with an asset-based solution like receivables factoring.
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