It’s not an exaggeration to say that payroll is in many ways the heart of small business success. Your employees are the key to smooth business operations, and paying them accurately and on time is essential if you want to avoid employee turnover.
At Select Funding, our mission is to provide small businesses with the working capital they need to pursue their growth goals and achieve their business objectives. Since it’s common for small businesses to make payroll errors, we recommend outsourcing to a payroll service provider who can take care of paying employees, tracking time off, and withholding taxes. Here’s what you need to know about choosing a small business payroll service.
What is a Payroll Service?
A payroll service is a company that contracts with employers to manage their payroll and related tasks. Small businesses often outsource their payroll because they don’t have the working capital to pay for an internal accounting department to handle payroll.
Because payroll services specialize in payroll, they can typically process payroll more quickly and more accurately than an internal department or employee could. That’s important for many reasons because errors in payroll, or errors in tax withholding or payments, can be costly.
We’ll review the essential elements of a payroll service later, but for now, you should know that it’s wise to look for a company with a good track record and to be sure that you understand how their services work and what you can expect from them.
What Features Should a Payroll Service for Small Businesses Have?
Before you begin your search for a payroll service to manage your small business payroll, let’s look at the features and services you should expect.
Payroll Processing
The first and most important function of a payroll service is payroll processing. The service you choose should calculate employee pay for each pay period. They should also track hours when it is necessary and account for employee benefit deductions, overtime, holiday pay, taxes, and Social Security. They may also keep track of employee vacation and sick time.
Payroll Taxes
Closely related to payroll processing is the issue of payroll taxes. The payroll service you choose should withhold employee taxes, including Medicare and Social Security taxes as well as state and federal income taxes. They should also file your quarterly payroll taxes and pay withholdings to the appropriate agencies, and issue W-2 and 1099 forms at the end of the year.
Integrations
Your small business probably already uses a variety of software and apps including accounting software, human resources software, or a time and attendance system. Ideally, the payroll service you choose should easily integrate with your existing tools to simplify the process of tracking payroll.
PTO Management
We already referred to this feature, but any payroll solution you choose should keep track of employees’ paid time off, including vacation and sick hours as well as disability leave. While not every payroll service offers this feature, some will even process time-off requests and approvals for you.
Employee Self-Service
It’s important for employees to have access to their personal payroll information, including pay stubs, PTO balance, and end-of-year tax forms. Many payroll service providers have an employee portal where employees of your company can log in and view their personal information whenever they need to do so.
Mobile Access
Mobile access is useful because it means you, your accountant, or your employees can access your payroll service and get information from any device, whether it’s a smartphone or a tablet. You never know when you might need to check your payroll on the go, so this is an important feature.
Payroll Reporting
When you make decisions about how to run and grow your company, you’ll need to have access to payroll reports that provide an overview of how you’re using your employees’ time and skills. The best payroll services for small businesses provide standard and ad hoc reports to help you make decisions to meet your business goals.
Accountant Collaboration
Your accountant may be the one preparing and filing your taxes. If they are, they’ll need access to your payroll information. Many payroll services have collaboration features that your accountant can use to access information, including employee tax forms, to file your taxes in accordance with federal and state law.
Should You Choose a Payroll Service or Payroll Software?
So far, we have focused on choosing a payroll service but another option to consider is small business payroll software, most often offered as a software as a service (SaaS) option. Here are some key differences between the two:
- With a payroll service, your involvement with payroll will be limited and mostly hands-off because the service will do the work for you; with payroll software, you’ll be setting up your payroll and human error may be an issue.
- There’s more of a learning curve with online payroll software than there is with a service. Many software companies provide on-site or online training, but you’ll still need to learn and/or train employees to use the software.
- You’ll have more internal control with online payroll software than you would with a payroll service. While most payroll services are trustworthy, there’s no denying the risk of allowing an outsider access to your company and employees’ information.
- It may be more difficult to get necessary data from a payroll service than it is from payroll software. In some cases, you may need to wait for the payroll service to get back to you, while with payroll software, you can run payroll reports as needed.
- Payroll services are sometimes—but not always—more expensive than payroll software, but it really depends on the software. Some software options are more expensive than services, so it’s important to check. You’ll also need to keep in mind that payroll services are more expensive because they offer more in terms of services.
There are advantages to each option. It’s important to keep in mind that any mistakes that occur with your payroll or taxes are your responsibility, even if you outsource to a service.
What Are the Benefits of Outsourcing Your Payroll to a Payroll Service?
Outsourcing your payroll has many advantages for small business owners. Here are some to consider:
- Outsourcing saves time. It is likely to take a payroll service far less time to process your payroll than it would take an employee because the whole thing will be automated.
- Outsourcing reduces mistakes. While it’s certainly not impossible for a payroll service to make an error, most companies that provide such services have the process down to a science.
- Outsourcing improves tax compliance. Withholding and paying taxes are two areas where small businesses are most likely to make mistakes. Payroll companies have the experience and tools to make sure they withhold the proper amounts and report and pay taxes accurately.
- Outsourcing makes it easy to integrate data. Provided you choose a company whose software integrates with what you’re already using, you’ll have access to all the information you need in one place.
- Outsourcing facilitates employee self-service. With outsourcing, it’s easy for employees to securely access and view their pay stubs, PTO, and tax forms.
- Outsourcing saves money. While it’s true that payroll service companies charge fees, the long-term costs may actually be less than they would be if you managed your payroll in house, both in terms of employee hours and costly errors.
In terms of cons, cost may be an issue. The most important potential issue to consider is that if you hire a service and they make a mistake with your payroll or taxes, it is still your responsibility. If there’s a penalty to be paid, you’ll need to pay it, so be sure to research any payroll service providers you consider and read reviews before signing on.
Tips for Choosing the Best Payroll Service for Your Small Business
Here are some pointers to help you choose the best payroll service or software for your small business:
- Learn about pricing. Payroll services typically charge a base fee plus a per-employee fee that is charged for each pay period. The base fee may range from $20 to $100 per month or pay period, while per employee fees range from $1 to $15. There may be additional fees for creating and distributing tax forms, making direct deposits to employees’ accounts, and other payroll features, so make sure to ask.
- Acquaint yourself with features. We suggest making a list of the most important features and ranking them before you research providers. This way, you can eliminate providers who don’t offer what you need.
- Look for ease of access. Ultimately, you want a user-friendly interface that you and your employees can learn to use quickly. You may also want to consider whether a service provides training.
- Prioritize support. Different services offer different types of support. Ideally, you should look for a payroll company that offers customer service support in multiple ways, including phone, live chat, and email. Some companies make sure that each employer has a dedicated support representative.
- Ask about outages. Since most payroll services and software options are cloud-based, you should be sure to ask about what happens to your payroll solution when and if there’s an outage.
- Choose employee access. You need a system that allows employees to access their personal information when they need it.
- Check reviews. We recommend researching each service provider you consider and reading online reviews. Make sure to read both positive and negative reviews to get a handle on any potential issues.
- Consider added services. Finally, ask which additional services each provider offers. You may prefer a company that offers employee benefits administration or retirement plan administration.
Using these tips will help you evaluate each provider and make the best possible choice for you and your employees.
Get the Working Capital You Need to Outsource Your Payroll Management
Outsourcing your payroll system can help you save time and money while also making tax filing and compliance easy. You can use the features and tips we’ve included here to evaluate your options and choose the best payroll software for your business.
Do you need working capital to pay for full service payroll outsourcing at your growing business? Select Funding is here to help! Click here to read about our small business financing options and start the approval process today.
