Outsourcing Payroll Processing: A Smart Decision

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Dan WeissI’ve found outsourcing payroll processing to be one of the smartest business decisions you can make. For a new organization with no experience in payroll, trying to learn the intricacies of payroll is a fool’s errand.

Justifications for Internal Processing

Here are some common justifications for why a company will do its own payroll.

“Doing our own payroll isn’t that hard.” As a process, it’s not that difficult. It’s a learned skill like any other. But it’s the exceptions – the pitfalls – that will get you into trouble. Laws change. Different taxing districts have different and complex rules. At the very least, you’ll have to deal with federal, state, and local requirements. More importantly, people make mistakes, and these mistakes can be very expensive in the payroll world. Monetary penalties, interest, and even criminal penalties are at stake.

But can’t the payroll company make mistakes, too? Sure, but it’s not as likely. They’re highly automated, and they do payroll all day, every day. More importantly, when they make a mistake, they’ll pay the consequences rather than you. That’s huge.

We already have trained staff to do it.” I’ve seen too many “payroll czars” whose positions take on a life of their own. What should be a four hour job every two weeks becomes almost full-time work. Another problem is flawed decision making and rationalized inaction about overhead costs. A business manager may say, “Yes, we could outsource payroll, but Susie has been here eighteen years. Not only would we have to pay the payroll service, but what would Susie do?”

Doing payroll in-house saves us money.” If you’ve never experienced a problem with payroll, it’s easy to rationalize keeping everything the same. Perhaps your internal processing is efficient and has been done at a lower direct cost than outsourcing payroll processing. On the other hand, I’ve seen too many organizations incur unnecessary and unexpected costs because of a one-time mistake. Often, companies will begin to outsource payroll after an expensive experience. Wouldn’t it be better to make a change before that happens?

Choosing a Service

Which company will I use?” My only criteria for choosing a payroll service is that it be stable. While everyone’s perception of stability will be different, this isn’t a factor to be overlooked. A payroll company that goes out of business will likely take your most recent payroll with it into bankruptcy. This means you’ll have to come up with the same amount, again, to pay your staff. The process may take years to resolve, and there’s no guarantee you’ll recover your money.

If you’re doing your own payroll, look very closely at outsourcing payroll processing to a payroll service. It could be the best business decision you ever made.


Dan Weiss, founder and President of Counterpart CFO, leads a team of flexible, part-time CFOs specializing in nonprofitsTo read more from Dan, follow him on LinkedIn or subscribe to his blog at www.counterpartCFO.com.

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