How To Choose A Payroll Provider For Your Business

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Summary. Deciding to outsource part of your business can be a daunting decision. If you’ve been running your business by yourself, it can be difficult to release some of the control. However, if you find yourself making errors due to overwork or if you’re spending too much time on payroll and not enough on your other duties, it’s time to let go.

A payroll service provider takes care of the payroll for your business. That means that they track salaries, deal with withholding and any potential garnishes, and then hand it out to your employees. This can free up a lot of time for you if you’ve been the one handling payroll, as well as helping ensure accuracy and tax compliance.

Key Takeaways:

Payroll providers help with making sure that employees are paid properly and on time, as well as keeping your business tax-compliant and keeping proper records.
A provider won’t be tailored specifically to your business, making it impersonal. It can also take time and effort to find the right provider for your needs.
When choosing a provider, be sure to compare the services you need against how much they cost. Their customer service rating and how familiar they are with your industry are other major factors to consider.

What Is a Payroll Provider?

A payroll provider is a company that will provide payroll services for your business. The extent of services offered will depend on the company and how much they cost. The majority of providers will provide basic services related to calculating and disturbing pay. Other providers – or more expensive plans – will offer more in-depth services.

Services provided include:

Calculating employees’ gross pay. While this is a fairly simple calculation, it gets more difficult the more employees that you have – especially as they’re likely to all have different hourly rates. A payroll provider will keep track of all this for you.
Withholdings. Payroll companies will take into account what is required to be withheld in terms of their tax bracket as well as if the employee elects to have any more withheld.
Garnishments. This is an unusual circumstance, but if for any reason an employee is required to have part of their pay garnished, then the payroll company will take care of it.
Disbursing payments. Once the take-home pay has been calculated for all of the employees, the payroll company will distribute the money to the individual employees. That means that they’ll handle the money management and making sure each person is paid the right amount.
Creating payroll records. Keeping track of the pay records is another important aspect of a payroll provider. Knowing how much you pay different employees and when is important information, especially in the case of a dispute. But also, pay is one place where employees won’t tolerate mistakes.
Ensuring tax compliance. A payroll provider will take care of making sure that you follow the tax laws related to payroll and employment. That includes withholding and other tax regulations.

While every payroll service will provide the above services, premium services may also:

Do new hire reporting. Every time a new employee is hired, it has to be reported to the appropriate agency in your state. A higher-level payroll service will take care of this for you.
Provide employee self-service portals. Many businesses now offer an online portal for employees to look at their benefits and pay records. A payroll provider may include this in your services, meaning that you won’t have to shell out extra money or time in getting your own – or replying to employee inquiries about these subjects.
Track time and attendance. Some payroll services will also include keeping track of employee hours and attendance for you. That means that they do all the work in terms of calculating their pay. They use their hours to calculate their gross pay (if they’re paid hourly) and hand out the pay. This info may also be included on the portal, if applicable.
Take care of tax filing. If you have a higher level payroll service, they will offer services to file taxes on the company’s behalf. This is getting closer to a full-service accounting firm.
Track PTO and sick leave. A payroll provider can help keep track of attendance and hours, the service and track sick leave and PTO. That means that they can keep track of all of your employee’s leave, attendance, and hours worked on your behalf.
Management of employee benefits. In addition to monetary compensation, a payroll provider can keep track of employees’ additional benefits. That means that they can track your entire compensation package for you and make sure that your employees have access to what they need to.
Software integration. This is a different sort of service, but if you have an old payroll software that you’re running – or if you used a different company – the payroll provider will help either transition you over or find a way for the two types of software to work together.

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Does Your Business Need a Payroll Provider?

Whether or not you need a payroll provider is going to depend on several factors. The first is going to be the size of your business. If you only have a few employees, it’s probably not going to be that difficult to handle yourself, but if you have a large number, it’s likely simpler to outsource it.

Another factor is going to be whether or not you have a competent bookkeeper. If you already have someone who’s good at accounting on staff, you may not need a payroll service. But if you don’t, it may be easier to hire a service that specializes in it rather than hiring a bookkeeper and getting the necessary software.

So, if you don’t have someone who’s experienced at it and if it’s taking up a lot of your time, you likely want a payroll service. However, here are some pros and cons to consider.

Pros of a payroll service:

Saves time. If you’re the one doing payroll, hiring an outside service could save you a tremendous amount of time that you can spend on running your business. This is especially true if bookkeeping isn’t your forte, as you’ll be struggling with something that isn’t in your wheelhouse.
Minimizes errors. If you have a professional service whose area of expertise is payroll, then they’re much less likely to make errors than someone who isn’t a payroll expert. They’ll also be familiar with tax law and other requirements that you may be unaware of or would have to keep referring to.
May offer access to useful data. If you get a higher level of service, it may come with access to an employee portal or a service that tracks your employees’ hours and attendance.

Cons of a payroll service.

You’ll have to find the right service for your business. Picking out the right service can be daunting. There are quite a few payroll providers, and trying to find one that knows your business and offers the services you require may take effort to locate.
Costs money. While hiring a payroll service may save you money in some ways, you do have to shell out for the service. Depending on who you hire for the process, they may or may not be more expensive. Either way, it requires spending some of your gross profits on the service.
Isn’t personal to your business. Payroll providers’ business may be payroll, but they do the payroll for a bunch of businesses – not just yours. That means that while they may have all the information about your pay and employees, they don’t work for your business so they don’t know it. It makes it impersonal.

What to Look for in a Payroll Provider

When choosing a payroll provider, there are a few key things that you want to look at to make sure that it’s the right service for you and your business. Here are the primary factors to consider when selecting a payroll service provider.

Services included. What services the service offers is going to be the primary factor in which provider you choose. You want to make sure that they cover the basics but also that they include further services that are important to your business.
Pricing. This is another make-or-break factor in your decision. How much the service costs are relative to what you get from it. It is likely to be a tiebreaker between two similar providers.
Service integration. If you already have payroll software, such as QuickBooks, you’re going to want to be sure that the service you hired is going to be able to integrate with the system you already have. They don’t need to do it exactly the same, of course, but it’ll help the transition a lot if they can use the data you already have easily.
Customer service. The nature of the customer support options is another big factor. If something goes wrong, you want to know that you can get in touch with them and get the problem corrected.

This isn’t necessarily something you can tell from speaking with the provider – you may need to do additional research to find out how good they are at solving problems that their customers run into.
Familiarity with your industry. While not always imperative, it’s helpful to know that the provider you selected knows about your industry. That means that they’ll be familiar with the typical pay, taxes, and other expenses and business practices that are common in the industry and will make it easier for them to work with you.
Tax compliance. While all payroll service providers should be familiar with the current tax laws, you should check to make sure that they’re completely up to date with the latest regulations. If there are taxes particular to your industry, make sure that they’re well-versed in those as well.

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