At this time of year, it’s important to evaluate your processes and determine if there is room for improvement. One area that I see a lot of room for improvement in many clients is payroll systems. Most companies would rather change payroll systems at the beginning of the year. Although this is an excellent strategy, there is quite a rush in January for many companies to sign up for payroll services and this creates a bottleneck in the conversion specialist. If you are planning on change payroll I suggest you make the decision in the 4th quarter and contact the payroll provider and set up the new system in early December to “go live” Jan 1. Using this methodology, you should have a calmer conversion and a smooth conversion.
There are many payroll choices to make and sometimes it hard to navigate the options and make the right decision for your company. So let’s keep this simple with 3 options, In-house Processing, Payroll Service Bureau, Hybrid model.
In-house processing means that you prepare the payroll manually or with payroll software, deposit tax payments, and prepare and file payroll returns and take full responsibility for any errors or issues. I do not recommend this option to my clients since I have seen too many costly errors. Also payroll processing requires that you understand and comply with payroll requirements and this can be a daunting task if it is not your number one priority and you have other duties and responsibilities in the organization. I often hear that since there are few employees it’s easy, however the requirements do not change if you have 3 or 30 employees, they are based on earnings not head count. One payroll error could cost thousands in lost time, accounting fees, fines and interest. At the end of the day you would have been better off outsourcing the payroll.
Payroll Service Bureau method uses an outside processor to prepare your paychecks, reports, returns, and submit payment of taxes. This is usually the most expensive option because you are outsourcing the duties and responsibilities of payroll.
Hybrid Method is processing can have many options but the configuration I see most often is that companies use in-house processing to prepare the payroll and have an outside Accountant or Bookkeeper prepare the payroll tax returns. Using this method you get the expertise of an accounting professional and depending on the arrangements they may or may not assume responsibility for errors.Many companies who use this method have found over the years that their Accountant or Bookkeeper leaves or stops proving this service. If you are using this hybrid method, I would suggest you contact the person or firm to verify that they will continue to provide this service in the long term.