Pros and Cons of Payroll Outsourcing For SMEs

This site is mainly about “how things work”, but every once in a while we also like to provide our readers with pros and cons about things. So the topic of today’s article is the pros and cons of payroll outsourcing and whether it works for small businesses.

First, let us consider the benefits of outsourcing payroll for small businesses.

pros and cons payroll

The upside of outsourcing payroll

  1. It can free up time for small businesses

Every small and medium enterprise starts off with great deal of workload for the employees and naturally they have a lot to deal about rather than worry about payroll. If a small business owner is also handling payroll of her/ his employees, no matter how few in number they could be, it is bound to take up much of one’s time. Instead, through payroll outsourcing a lot of time could be freed up for the owner.

  1. Accurate tax calculations

For business owners in the US, tax calculations are highly complicated due to different levels of deductions at the state and federal levels. For accurate and consistently correct taxes, a professional payroll service company is naturally more equipped, owing to its qualified and experienced professionals. The IRS actually imposes fees and penalties if taxes are filed incorrectly and many a small business owner has borne the brunt of these policies. Not having to worry about IRS fees and penalties is one of greatest benefits of outsourcing payroll.

  1. Lesser hassles

Manual payroll is a hassle and this statement can be vouched for by hundreds of SME owners. By outsourcing this service, one can alleviate a great deal of pain and headache. Many people who wish to start their own business are oftentimes deterred by the fact that payroll processing is tedious and complicated. This is where outsourcing payroll can come into the picture.

Now let us discuss some of the cons of outsourced payroll.

The downside of outsourced payroll

  1. Owners do not always get what they are paying for

Many payroll companies offer package deals which might contain services that are not relevant to some businesses. An all-inclusive package does not necessarily save business owners money; in some cases one ends up paying more than what is necessary. Hence, it is essential to study the package carefully in order to exactly get what one is paying for.

  1. Choosing the wrong company

Given the choice there is available today in business payroll outsourcing, one can end up choosing the wrong company. Inexperienced and fraudulent companies can produce errors which can end up being expensive headaches for the organization. It is important for companies to adhere to existing legal framework as failure to comply to these can cost a great deal of money. Likewise, simple human errors can also end up being hassles.

  1. Confidentiality issues

It is vital that payroll whether it is in-house or outsourced must ensure protecting the sensitive information of all workers. Therefore, strict control measures must be in place to prevent breaches in security. These notwithstanding, it can lead to disastrous effects on the organization. Hence, when choosing a vendor to outsource payroll to, data security must be a point high up in the list of agenda for negotiations. Good portals must be in place to ensure that payroll information is not hacked or intercepted by third parties or wrong persons. Password protection must be used where needed.

In conclusion

As can be seen there are many benefits and disadvantages in outsourcing payroll. That being said; the benefits far outweigh the disadvantages and by choosing the right company, many of them can be prevented. Naturally, the key to success in outsourcing payroll lies in intensive communication and coordination between the enterprise and the vendor.

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