Monday, October 16, 2006

The Bottom Line of Payroll

In reviewing a business loan proposal, the lender will often ask how much time is spent on making money and how much time is spent on non-revenue generating activities. The processing of payroll is one of those items that is clearly important, but may not be the best use of time for a small business owner.

I spent some time recently with Steve Goldstein of Payroll Management Solutions to get his thoughts on a recent poll from the NFIB which showed that nearly two thirds of the nation’s small businesses process their own payroll due to concerns about cost and control. Here’s what he had to say…

After 23 years in the payroll outsourcing business, the most common misconception I deal with every day is that by processing their own payroll, employers save money or maintain a degree of control they would otherwise have to give up as if their time is worth nothing and there is no risk involved.

Like rent, payroll processing is a task that produces no revenue though it is a necessary evil for business owners who wish to stay in business. Time spent processing payroll is time not available to add to the bottom line, whether that might be increasing sales, collecting receivables, developing new products or strategies, or even taking some time to relax and recharge the batteries. All of these things are more productive than payroll processing which can only create risk for the owner as well as cost time and money.

What’s the risk? Every single paycheck includes at least five required tax deductions in each state which then must be added to other employer taxes and voluntary deductions, and every one of these items is an opportunity for a problem to occur. The late or incorrect deposit of these tax liabilities can result in costly penalties and interest for a business owner.

For a company with as few as five employees, a small boutique provider of payroll services might charge as little as $20 per pay period plus $1.65 per check to completely outsource the task of calculating payroll and properly paying all state and federal taxes. The time spent on payroll can be reduced to simply reporting the hours worked. The payroll service provider shoulders both the workload and the liability of the payroll processing and the business owner can now focus on bottom line - running and growing their business.

The employer maintains complete control over when and how the payroll is processed, wages, raises, reviews, hiring, and benefits. Access to information is also not a valid consideration as business owners have complete access to all reports, history, personnel data as well as report writing capability with our web based service. Since there are no "contracts" in payroll, no employer is ever forced to stay with a service they find unsatisfactory for any length of time. All payroll services can be terminated with a simple letter or phone call.

The biggest benefit of tax filing service is that if ever a notice arrives from the IRS or EDD, a client simply faxes that to their service provider to be handled. These notices often result from a mistake by the IRS or EDD and are cleared up very quickly – all without any effort from the business once that fax is sent. The employer who does it himself (for "free") will spend many hours responding to such notices, hours away from the business that can never be replaced.

By the way, outsourcing your payroll function does not relieve you from your tax responsibilities. Entrepreneur’s October issue gives a business owner three tips to make sure your payroll tax is really paid. Stay in the loop, ask about bonding and confirm payroll tax deposits online.

How do you handle your payroll processing?

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