Payroll Management

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These days, most accounting software includes some type of payroll feature to help ease the pain of payroll management. But, depending on the number of employees, the type of business, and the particular needs of your company, performing payroll duties in-house may be more time-consuming than you expect. You may want to consider outsourcing your payroll to a qualified professional. It could save you time and money and allow you to concentrate on more important aspects of your business.


If you make the decision to keep payroll in-house, there are two hurdles you must overcome:

1. Finding the right personnel to handle the job
2. Choosing a program that works for your business

Many accounting software programs offer either integrated payroll modules or include them as add-ons; the complexity of the payroll will determine the level of software required for the job. Since most payroll modules now include custom deductions and state tax tables, will automatically calculate the tax liability, and also remind you of tax-deposit due dates, typical payroll management can be handled easily at all levels.


Companies have many reasons for outsourcing their payroll management. Payroll outsourcing is a logical choice among companies that want to reduce the non-core tasks of the business and hand them over to skilled vendors. Outsourcing allows businesses to gain access to the type of experts they desperately need but are unable to hire full-time because of the cost.

Payroll services handle everything from check preparation (or direct deposit) and payroll tax calculations to depositing tax liabilities and preparing/filing state and federal payroll tax forms. Most also develop a variety of statements and management reports detailing payroll activity. An added advantage of a payroll service is that they handle payroll related inquiries/audits from federal and state taxing authorities.

As competition for payroll management companies grow, outsourcing this function has become increasingly more cost-efficient for businesses. Rates and services vary among providers so you will want to shop around, taking into consideration not only price but also the exact nature and timing of the services provided. You can choose from local accounting firms, national payroll management firms, or data-processing companies. Be sure they have a proven track record with businesses like yours.

As with any outsourcing relationship, it is important to think about how hiring an outside vendor could affect your company. Consider, after all, that you're giving up control over what is likely sensitive business information. Done improperly, an outsourcing arrangement can result in delayed operations, unhappy employees and customers, and significant costs. It's critical to negotiate those elements that are necessary to ensure your business' survival, including:

Timelines: What is the process for compiling payroll data-and how soon thereafter are employee checks ready? When/how are checks delivered?

Response time: How quickly will the outsourcing company respond to a
customer request for service? How quickly will problems discovered by the
outsourcer itself be addressed?

Disaster recovery: The outsourcer should provide a written plan detailing
backup and switchover plans if the primary data processing site is unavailable.

Confidentiality: The agreement should make it clear that the small business' data
and information will never be accessible by or shared with the other clients of the
outsourcer. Nor should it be vulnerable to outside intruders.

Termination: The agreement should spell out the conditions under which either
party can terminate the relationship as well as an orderly process by which
operations can be returned to the business or transferred to another outsourcing
firm, upon termination.

A payroll management company can become a ready partner of a small business,
freeing up management time for other key functions of the business. It's a tool that has helped many small businesses stay competitive and focused on money-making priorities.

Portions excerpted from January 1999 Small Business Computing & Communications and June 1998 Business Week


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