Where Should You House Payroll for Your Small Business?

Guest Author: Erin Osterhaus, Software Advice


Payroll. Every business must have it in some form or other. Traditionally, payroll has been one of the most outsourced processes in the business world. Giants like Automatic Data Processing, Inc (ADP), Paychex and Ceridian have been tapped by businesses large and small to take charge of cutting checks for their employees.

But something’s changed. The payroll giants might have continued dominating the market, if it weren’t for one little fact: small and medium-sized businesses have wrested market share from these companies. The brands traditionally recognized as titans in the space have had to adjust their services in order to meet these clients’ needs. However, new technologies have led to an increasing number of payroll solutions for small businesses.

The result: an ever increasing number of payroll options for SMBs. But despite the number of software solutions available, the choice boils down to a simple dichotomy--keep your payroll in the hands of in-house administrators using payroll software, or outsource your payroll to a traditional payroll service.

So which should your small business choose? In the end, you’ll have to determine if the time time savings of outsourcing payroll trumps the money you’ll most likely save by keeping it in-house.


Time Savings of Outsourced Payroll vs. Money Saved on In-House Payroll

The US National Small Business Association asked 1,500 small businesses owners how they handle their payroll. Forty percent of small businesses outsourced their payroll function, while 60 percent said they handled it internally.

Among those handling payroll internally, nearly 25 percent report spending more than six hours on payroll per month. That's at least 72 hours per year—nearly two full workweeks. Mr. Jones notes that, if we employ to the 2012 data from the US Bureau of Labor Statistics to assume the hourly cost of an internal payroll staff to be $36, those 72 hours translate to $2,592 per year.

 

On the other hand, more than a third of the small businesses that outsource their payroll report spending more than $500 per month--that’s more than $6,000 in outsourced payroll per year.

So, the SMBs processing payroll themselves are spending their own man-hours, while those who outsource believe it’s worth the additional cost to have someone else do it.

Benefits of Outsourcing v. Benefits of In-House Payroll

Additional Considerations

The choice will not be the same for every SMB. As the data show, small businesses are very divided on how they process their payroll. For T. Rod Rodriguez, the owner of Gamajoto.com, a light manufacturing and distribution business, the choice between in-house and outsourced solutions comes down to what is most efficient and cost-effective for the size of the operation.

As Rodriguez says, “For a small business of around 10 people, I have found that the cost of paying an outside agency to manage payroll, tax liabilities, documentation, and process the physical checks is less expensive than having an internal dedicated person.”

Bottom Line

In the end, there’s no easy answer. As a small business owner, you’ll have to consider the number of employees and locations you have, the kind of benefits you offer, and how you handle accounting. You’ll have to decide whether you want to spend your time (or pay someone else to spend their time) cutting paychecks when you could be focusing on your business’s core competencies instead.

Bio:

This guest post was adapted for The Small Business Blog by Erin Osterhaus, Managing Editor at Software Advice, a company that serves as an online resource for HR professionals seeking to buy software. The original post by Marshall Jones, a contributor to The New Talent Times, can be seen here.