Take a Pass on Paperwork: Outsourcing Payroll

When you’re starting a business, focus on what you do best. Unless you’re an accountant, that probably doesn’t include the tedious but vital chore of handling payroll. So let others do it.

Why? Because it saves money and time. Instead of improving their working lives and freeing up more time to bear down on building the business, too many startups spend countless hours inputting data, writing checks and reconciling accounts.

Most of Clive Clifford’s clients want to do payroll themselves because they think it saves money. But the Columbus, Ohio-based professional coach tells them to reconsider. “I ask them, ‘Is this something you are able to do quickly and easily?’ In most cases, the answer to that is ‘No,’” he says.

“A lot of small businesses try to do everything themselves instead of bringing in outside people and freeing their time to focus on their core business, what they know how to do and what they do best.”

Check ’em Out

Before jumping into the payroll service pool, get a few quotes. Compare apples with apples – know what functions each provider handles and what you need them to do. Go with the best deal – and re-evaluate often.

Every year, Jennifer Deuel asks the payroll service provider Paychex what it would charge to handle the chore for her company. Deuel and her brother run their family business, Cricket on the Hearth, a fireside products retailer in Rochester, N.Y. They employ seven people, who were paid through Paychex for years until the costs became too much to bear. So they switched to e-Chex.

Even so, Deuel contacts Paychex every year for a price quote. When she gets it, she goes to e-Chex and asks for a match. She always gets it.

“Spend the time to make them competitive, because everybody will [raise costs] after a year or two,” she says.

Payroll Pitfalls

The only downside to outsourcing her payroll, Deuel says, is that she has to input the data from the e-Chex reports to reconcile her company’s internal accounting systems.

Businesses that want to keep accounting in-house for this and other reasons commonly boot up turnkey accounting software.  Some packages offer integrated payroll services.

Kevin Wales, for one, chose accounting software after first considering outsourcing. The Maryland entrepreneur runs a finish carpentry business that employs four people besides himself and his partner. He uses QuickBooks accounting software for all his business functions – from payroll to taxes to human resources, job management and accounting. QuickBooks partners with Intuit to offer an integrated payroll service.

“We looked at Paychex and ADP,” Wales says. “You have to send a file to them and then they send you a file back and you have to import it into your accounting system. It’s an extra step. [With Intuit,] it happens seamlessly through my QuickBooks software, no extra step.”

Alex De Parres, president of Head Entertainment in Houston, Texas, uses ADP for his 45-employee payroll, but agrees that it’s not a perfect system.

“It’s better to outsource,” De Parres says. “Otherwise we’d have a lot of administrative work. The only thing I don’t like is, once you set your amounts, it’s a little bit of a hassle to go over your amounts for payroll.” His Houston nightclub, Venue, pays out $10,000 each week, but when they wanted to increase it to $14,000, they had to get authorization from ADP.

Picking a Payroll System

Do your research, De Parres says. Look at what’s available and see what works best for your company.

Consider internal and outside options – services like e-Chex, Paychex, ADP, PayCycle and CompuPay charge less than $100 per pay cycle to handle your payroll and also take care of tax payments and other regulatory requirements.

However, working with a software system that matches the rest of your administrative duties has its advantages – like one-time information entry. Be realistic about how much time you’ll spend doing data entry.

The best place to start is to talk with your bank and business colleagues, Clifford says. Most entrepreneurs have a relationship with a bank – ask who it recommends for payroll. Shop around. Read the fine print. Read between the lines.

And remember: You can always negotiate. “One area that’s negotiable is how soon they want you to pay up the money,” Clifford says. Some payroll services require a company to deposit funds a week or 10 days in advance of the payroll date – but it’s not necessary. “In today’s electronic age, that shouldn’t have to be more than a day or two. Some will give you online access to what’s happening and some don’t. Don’t pay for more than you need.”

After all, you’re the boss.

Lynne Meredith Schreiber is a freelance writer for StartupNation.

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Lynne Meredith Schreiber