Starting your own business is one giant DIY project. From painting your new office to setting up computer equipment, most new business owners are willing to put in a lot of sweat equity to save on startup costs. When it comes to payroll, however, you may want to carefully consider the pros and cons before deciding whether to do it yourself.
Even for small businesses, payroll and withholding obligations can be complicated, even overwhelming. Choosing whether or not to outsource your payroll to an outside firm, including possibly an online payroll firm, could be one of the most important decisions you make.
While managing your own payroll may save you money in the short term, it could cost you in the long run if you make a mistake and end up owing the IRS back payments and penalties.
"If a small business owner has a good background in accounting and is willing to research all the laws, remember all the deadlines and has a very simple payroll, then they could consider doing the payroll themselves," explained Clare Wherley, CPA, and co-founder of accounting firm Lassus-Wherley, with locations in New Jersey and Florida. Wherley explained that only sole proprietorships and partnerships are exempt from payroll filing obligations.
Wherley warns, however, that managing payroll isn't just about writing out paychecks and calculating withholdings. An employer's payroll responsibilities often include:
- Issuing paychecks
- Filing quarterly reports
- Withholding employee taxes
- Paying withholdings to government agencies
- Issuing W-2's at year end
- Summary filings at the state level
- Managing employees' health and pension plan contributions
- Handling state disability, unemployment and family leave assessments
- Notifying the government when employees are hired or leave the company
The ever increasing complexity of managing payroll and navigating the tax system has led to a proliferation of payroll companies offering a wide range of services. Some companies will charge based on the total payroll amount per pay period, while others charge by the check. The basic cost for a payroll services varies, but a good estimate is $2-$3 per check for basic check issuing services and up to $5-7 per check for more in-depth services. These services can include everything from filing quarterly and annual payroll reports with the IRS to taking full responsibility for employees by technically "hiring" them as employees of the payroll service company. They can also offer benefits, such as vision and dental plans, as well as retirement investment plans that your employees can choose to participate in.
Before deciding whether to outsource your payroll, consider contacting a few payroll service companies to get an idea of what they do and what it will cost. One useful tool for comparing services and prices is a web site called Payroll Service Comparison. This web site asks you a few questions about your business and payroll needs and then provides you with free price comparisons from three or four different payroll services. Our sister site, TopTenReviews, offers reviews of online payroll services.
In-house + outsourcing
Another option is to try to strike a balance between outsourcing and keeping payroll services in house, said David L. Gray, Assistant Professor of Accounting at North Central College in Naperville, Ill.
"There are several options for small businesses who need some assistance with payroll but don't want to outsource it completely," Gray said. Accounting programs such as Intuit's Quickbooks, offer payroll services that allow you to print out your own paychecks, but calculate withholdings and prepare reports for quarterly and annual filings. Banks are also now offering varied levels of payroll services, Gray said. The cost for some of these more basic services can be as little as $1 per paycheck, Gray adds.
"Whether you go with a more comprehensive service or a more basic service, many people find it's worth paying a premium for the peace of mind," Gray said.
But both Gray and Wherley warn that regardless of which payroll service a company uses, the company itself is ultimately responsible for the withholdings and filings. Both suggest that companies monitor payroll reports for the first year and even consider having your accountant keep an eye on the reports that are being filed on your behalf.
"A payroll company will not take responsibility for the data the owner provides and it will not make sure the owner understands what data is required," warned Wherley. "So a lot of attention needs to be paid to payroll in either case."
Thanks to Jeanette Mulvey / Business News Daily / Tech Media Network