When payday arrives, everyone assumes they’ll be paid on time and in full. They don’t appreciate how much work goes into achieving this. For some businesses, it is done in-house, though around a third of businesses are penalized by the IRS for errors. Others hire a professional expert or service to do the task. Here are a few tips on how to choose the right payroll provider for your business.

Consider the Services You’d Want to Bundle In

There are large payroll services that offer “bundled” services, combining Human Resources services along with payroll services. If you are large enough to benefit from outsourcing hiring and other HR functions, this is a cost-savings. If you aren’t big enough to benefit from outsourcing HR functions or don’t want to lose direct control of HR, then there’s no point in paying for the higher monthly costs for the extra service. However, if you want to offer retirement accounts or health insurance to your employees, you may want to select a payroll service that can administer these benefits and collect payment through employee paychecks.

Another issue is taxes. A payroll company should be collecting payroll taxes and forwarding them to the government. If you’re dealing with different state taxes in addition to federal taxes, it may be worth hiring a payroll service to simply get rid of the workload. But will you be using the payroll service to handle the company’s income taxes each year?

Only Consider Payroll Services that Work with Your Type of Business

You could create a list of potential payroll services to winnow down to a final choice by asking other businesses for their recommendations and the reputation of each firm. However, there are payroll services for all types of businesses. Find a service that understands your business. For example, a payroll service that regularly works with restaurants knows how to handle tips. Payroll services that work with union shops know how to handle those rules regarding dues and pay scales. And you have whole new business sectors like the legal cannabis industry that introduces all types of new regulations. You can read more here for more information about payroll services specific to this industry.

Understand the Cost Structure You’re Committing To

One issue many small businesses often overlook is the cost structure for the payroll service. They understand that they pay more for services like corporate tax preparation and benefits administration, but they don’t always understand how the cost for the payroll service itself is determined. Will you pay an annual fee for the payroll service? Will you have to pay a fee based on the size of your payroll? Or will you pay a flat fee per employee, one that will increase along with the headcount? And will you have to pay a fee if you change payroll, whether giving employees a raise or laying several people off? Will you have to pay a fee for every little action, such as when an employee switches to direct deposit of their paycheck?

Don’t forget to ask about taxes. Payroll services sometimes charge an additional fee if they’re dealing with taxes for employees in more than one jurisdiction. Will you have to pay extra if you’re asking them to file income taxes in multiple states as well?

Determine the number of people they’re going to manage and compare this to their prices. And research the hidden fees or little fees that could dramatically inflate the total bill. Make certain you can pay the payroll service before you hire them.

Know How Compatible They Are with Your Operations

Take the time to learn what back-office technology they use. Is their system compatible with your accounting software? If data has to be re-entered in their system, this raises the risk of mistakes and, potentially, the cost of the service. If you have to enter the data, you have to decide if it is worth it. This is aside from the process they may have for error correction.

Another thing to factor into the equation is self-service for your employees. Does the payroll service have a system to let employees access data? Can they view their payroll history and pay rates by logging into a website? Can they make changes to tax withholding or deductions online? Would they be able to make changes to benefits through the website?

If the payroll service offers this type of portal, note that you may still have to charge an extra fee for the service to be extended to employees in multiple states, or it may not cover employees located outside of your state. And that’s aside from compatibility with your IT infrastructure. If they have to build a custom interface to work with your business, that could raise the overall cost of working with them. If they have an existing website for accessing information, verify that it is user-friendly.

Conversely, some payroll services only offer a call-in service, and that may be considered too inconvenient by your employees.

Research Their Quality and Accountability

Don’t select a payroll service without asking a number of basic questions. How fast is the turnaround on issues like new employee setup? If the payroll service makes a mistake, who is considered liable for them? How long does it take to fix a mistake? Who is your point of contact if issues arise? How will you reach them? What are the hours of support if there is a problem? If someone makes a mistake and data has to be re-entered, can you as the business owner review it before it goes through payroll?

Another factor to consider is reporting. How often will you receive reports from them? What is the turnaround time if you request a report? Another question is whether they’ll bill you for custom reports or reports on demand.

Take the time to learn about their reputation. Do they always send taxes to the government on time and in full? What do their customers say is their turnaround time for dealing with problems? How accurate were their reports and the paychecks they sent out? When the payroll service made a mistake, did they take responsibility – and if appropriate, liability – for it?

Take the time to do your research when hiring a payroll service. You cannot afford to make a mistake when outsourcing such a critical part of your business.

By Erica Buteau

Change Agent. Daydream Believer. Maker. Creative. Likes love, peace and Jeeping. Dislikes winter, paper cuts and war. She/Her/Hers.

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