According to many business consultants across the world, a small business is better off outsourcing all its non-core processes, which are defined as the processes that are necessary for your business to run but do not generate any profit. In most businesses, regardless of size, processes like administration and payroll can be considered non-core, and as such, are prime candidates for outsourcing.
However, the question that arises is – what do you actually gain from outsourcing payroll? Is it worth all the time and effort just to investigate and identify appropriate outsourced service providers? Then there’s the work involved to transition the function outside to the third party service. Do the benefits of outsourcing outweigh that effort? In this article, we will outline three major benefits of outsourcing your payroll that will show that, yes, the rewards are definitely tangible.
1. It Allows You to Focus Better on Your Core Business
Payroll is one of those critical functions that may not directly increase sales. But carried out poorly, it can put your business in a world of hurt. And most of all, it can sap internal time and attention away from core activities.
Businesses have to comply with a wide range of laws when it comes to employees — from federal, to state and local. It takes considerable time and attention to detail to deal with them. There are the obvious legal requirements, such as tax reporting and remittance. There are requirements around withholding taxes from the employee’s pay, and also calculating the employer’s portion of taxes. In some cases, there are electronic filing requirements. You need to also know when to file at each of these levels.
Taxes, though, are just the start. As an employer, you also need to understand wage and hour laws. For example, you need to know when you are required to pay overtime. The rules governing these can be highly technical. Then, there may be new-hire reporting requirements, and state requirements around unemployment compensation and workers compensation insurance.
An even bigger issue is the unexpected time obligations. You may have set aside a certain amount of time each week to run payroll. Then you get an unexpected surprise in the form of a notice from the ATO. But it’s not just that you’re being notified that you owe a fine. Now you have to go through your records and investigate to determine if you actually committed the infraction. All of a sudden you are involved in a dispute resolution. And, as you can imagine, it never happens at a convenient time for a small business owner.
2. Get Access to Expertise and Technology
Another reason to outsource is to get access to expertise and technology. Employers have to deal with a high number of taxing jurisdictions across Australia. While most small businesses won’t have to comply with each of those jurisdictions, still it points to the complexity of the laws. And every year hundreds of new laws and regulations are enacted.
Just as important as expertise is new technology. Employers today rely on technology to operate more efficiently. As a business grows, employers have more employee records to keep and also need more reporting. Lack of technology becomes a hindrance to scaling for the growth of the business.
Employees also expect technology. Employees today want options like direct deposit and self-service access to their payroll information online. Employers that aren’t able to provide such options may be at a competitive disadvantage.
On top of that, the explosion of mobile device usage is ushering in a new level of technology expectation. Mobile use is still nascent when it comes to payroll, but it’s growing at a rapid rate. Employers are using mobile devices to look at certain reports and look up information, such as how much money they need to have in the bank on payroll dates. Employees also are beginning to use mobile apps to check their own records.
Experts suggest that payroll mobile usage will continue to grow because it frees up business owners and managers to leave the office.
3. Reduce Costs and Risks
Outsourcing payroll can also assist with cutting costs and limiting risks. On average, businesses are overpaying employees by about 4 percent because of differences between the employee’s time and an accurate time record.
Then you have the potential penalties for violating reporting and other requirements. According to the latest figures from the ATO, a significant percentage of small businesses pay an average penalty of $845 per year for late or incorrect filings. Today there are outsourced solutions for businesses as small as one employee. Solutions are affordable, starting at less than $50 a month for small businesses, depending on needs.
A good payroll provider, like SJB Bookkeeping, offers capabilities that go beyond what you can do on your own. If you haven’t considered an outsourced solution before, make this year the year you switch. It will deliver peace of mind for you as the owner, and free up time in your company.