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Should I Hire a Payroll Service or Do it Myself?

August 22, 2012 by Ed Becker

Unless you are a payroll expert, we strongly recommend using a payroll service.  Here’s why:

A small business owner who is concerned about growing his or her business doesn’t have the time to keep up with the rules & regulations of payroll, especially in a multi-state environment.  Yes, all new businesses are concerned about the cost of a payroll service, however the cost of doing it wrong is much higher. The costs of making a mistake and owing the IRS or state back taxes, interest and penalties can be huge.

Processing payroll incorrectly can require much greater resources to rectify the issue.  Do you want to spend your time writing letters to state and federal agencies, fixing employee paychecks, involving your CPA and redoing payroll returns?  Or is time better spent growing your business?

Here is a brief list of expertise you better possess if you plan on doing payroll yourself:

  • Issuing paychecks (weekly, bi-weekly or monthly)
  • Filing quarterly reports (state and federal)
  • Withholding employee taxes and promptly paying using electronic remittance portals
  • Issuing W-2’s at year end
  • Considering the taxability of various deductions
  • Managing employees’ health and pension plan contributions
  • Understanding the proper set up if using  some form of computer program
  • Interfacing with time tracking systems
  • Handling timing and due dates for all tax payments and returns

In general, the cost to process a payroll check using an outside provider ranges from $4 to $7 per check for full service. There may also be some annual charges related to year-end filings.  Most payroll providers are experts at processing and can much better respond to any notices you receive from any agency. Wouldn’t you prefer to send a notice off to your payroll provider versus having to read, understand and respond to it?

OSYB recommends to its bookkeeping clients various service options that payroll providers can offer.  These options reduce the clerical tasks that owners usually take upon themselves.

Note: When selecting a provider, OSYB strongly recommends that you verify the bonding and insurance that they carry. If a provider ever closes its door, even after they have impounded your tax funds, you are still responsible for paying the taxes, which means you pay twice! This does and continues to happen with some smaller tier providers so be very careful.


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