Should I Outsource Payroll?

Q. Michael,

Since you run a payroll service there, this will probably be a slam dunk for you. I am a sole proprietor running a fashion design business. I run everything through a Schedule C on my tax forms. I’m not incorporated or anything like that.

I’ve used contractors in the past but I’m thinking I need to hire somebody. If I hire them, I am thinking about outsourcing their payroll because I don’t need any new headaches. I heard a “rule of thumb” from somebody that you should only outsource payroll after you get five or more employees.

What do you think?

A. Dear Wayne,

I hear this question a lot because the decision between outsourcing payroll and doing payroll in-house is one that small businesses face every day. As you might expect, I’m a big fan of payroll services – not just because payroll is my business, but because of the savings payroll services provide for small business owners.

First, payroll services save small businesses time. My guess is that you need to hire an employee because you are flooded with fashion design work. As the owner of your business, your goal is for both you and your new employee to dedicate as much time as possible to fashion design. But that’s not going to happen if you do your own payroll. Many small business owners underestimate the amount of time it takes to do payroll for their company, regardless of the number of employees.

Processing payroll, cutting paychecks, calculating withholdings, preparing W-2s and 1099s at year-end – it all takes time, especially if you are not familiar with payroll regulations. The time you will save by hiring a payroll service will be much better spent meeting the needs of your clients.

A payroll service would not only save time for your business. It also saves money. Sure, there is a cost associated with outsourcing payroll. But how much is your time worth? How much is your employee’s time worth?

Time is money, and if you were to add up the cost of doing your own payroll and compare it to the cost of outsourcing your payroll, you’d find that there is a significant cost advantage to outsourcing. Why? Because the payroll service has the systems and expertise to be more efficient at handling your payroll needs.

A payroll service could also save money for your business by making sure you don’t incur costly penalties and interest charges. Payroll taxes can be complicated. If they are filed or paid incorrectly, your business will be subject to penalties from federal, state, and/or local governments, as well any interest charges you rack up for late payment. It’s estimated that 1 in 3 small businesses in America incur a tax penalty of $800 or more every year. Penalties and interest charges are costs that can be avoided by using a payroll service.

The last thing a payroll service can provide small business owners is peace of mind. The information age has made payroll services the easiest and least expensive way to manage your payroll needs. At SurePayroll, our clients can submit their payroll information at their own convenience over the internet. With the click of a mouse, small business owners can enjoy complete peace of mind, knowing their payroll needs have been met in a timely and efficient manner.

You’re absolutely right — you don’t need any new headaches. My advice is to focus on fashion design and shop around for an established payroll provider that meets the needs of you, your business, and your new employee.

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