Payroll processing affects work-force retention rate

Since it is the primary way your employees are rewarded, late or incorrect paychecks can lead to a dissatisfied, unmotivated work force that will be difficult to retain. Your business image can be severely tarnished if you develop a reputation of having a “revolving door,” meaning high employee turnover.

When it comes to payroll, the employer/employee relationship is highly regulated.

There are now hundreds of things you must know, and hundreds of mistakes you can make when you try to handle the complicated job of payroll in-house.

The good news is that there are a number of benefits to turning over your company’s payroll functions to a professional payroll service. Here are eight of the most commonly cited reasons that small and mid-size businesses outsource their payroll:

Avoid IRS penalties

According to the Internal Revenue Service, 40 percent of small businesses pay an average penalty of $845 per year for late or incorrect filings. Most payroll services provide a tax guarantee and take responsibility for penalties should they occur. In many cases, this alone justifies the cost of outsourcing.

Reduce costs

Did you know that you could actually save money by using a payroll service? For example, a small business with a work force of 10 will spend an average of $2,600 per year in direct labor costs associated with payroll.

Despite the potential savings, cost is not the primary reason most business owners start outsourcing their payroll. Rather, they want to end the hassle of internal processing. Often, it’s only after they begin using a payroll service that they realize they’re saving money.

Alleviate frustration

Face it. Preparing payroll and managing the mountain of paperwork that goes with it can be a real source of frustration, especially when it keeps you from focusing on the reason you started your business in the first place: to do what you’re good at while enjoying the financial rewards.

Enable direct deposit

Providing direct deposit is difficult if a company doesn’t use an outside payroll service. Employees appreciate the convenience of direct deposit, and it ends the time-consuming and error-prone paperwork for business owners.

Use time efficiently

By eliminating payroll processing in-house, your staff can complete more important work critical to the success of your business.

Avoid technology headaches

Have you installed the most recent version of the tax tables and corresponding software? If not, be aware that using outdated tax tables can result in stiff IRS penalties. When you outsource your payroll, you no longer have the worries and expense of keeping software up-to-date and running smoothly. Let the professionals take care of it.

Leverage outside expertise

Do you have time to keep up with constantly changing regulations, withholding rates and government forms? Most business owners don’t – and wouldn’t want to if they did have the time. By outsourcing, a small business can take advantage of expertise that was once available only to big companies.

Avoid losing knowledge

What if your bookkeeper gets a new job and walks out your door with her knowledge of your payroll process? Using an outside service eliminates that business risk.

If you’re still undecided about outsourcing your payroll, ask yourself the following questions. If you can’t answer yes to all of them, you should seriously consider using a payroll service:

• Can you handle the calculations and details of your payroll with complete confidence that it is precise, timely and accurate?

• Do you employ fewer than 20 people?

• Do you understand all of the details related to filing your payroll taxes as a company and for each of your employees?

• Do you have an automated payment system or a system in place that will issue payments effectively and on schedule?

• Do you have the time and staff to verify the accuracy of all these operations?

More and more small- and mid-size businesses are recognizing the benefits of outsourcing their payroll process. Handling payroll correctly is critical to the survival of your business. In addition to the eight benefits listed above, the most important benefit to your company is the professional image you project to your employees, and in turn, to your clients, customers and community.

Jeff Hunter is president of The Payroll Company, which offers payroll, tax and human resources functions to businesses.