Payroll Processing: Should you DIY or Use a Payroll Service? (Part I)

For organizations to operate effectively, they must be able to pay their employees on time while remaining in compliance with all tax laws and regulations. This means processing paychecks and direct deposits correctly and in a timely manner. Payroll is one of the company’s largest expenses and errors in payroll processing can adversely affect the entire operation. Insufficient record keeping can also expose an organization to fines, penalties, and employee litigation among other things.

To avoid problems in this area, the company needs to have a workable and reliable process in place. For some, this means doing their own payroll. For others, using a payroll service may be the right choice. Here is a look at the advantages and disadvantages of each option:

The Advantages of Doing Your Own Payroll: Managing your own payroll may save you money in the short term. If a small business owner has a good background in accounting and is willing to research all the laws, remember all the deadlines, and has the ability to organize the company in a way that allows them to smoothly distribute payroll while keeping up with all the outside requirements, then doing their own payroll is worth considering.

Doing your own payroll puts you in control. You have control over the payroll process, your payroll data, and the accuracy of employee paychecks. Worker salary and benefits data is sensitive and needs to be handled privately and securely. Keeping payroll in-house alleviates this worry. Please note: if you do choose the outside payroll service option, always ask what measures they have in place to ensure that your sensitive company data is kept secure.

Self-service can give employees easier access to make changes with their own paycheck preferences. When doing payroll in-house, employees are often able to edit personal information such as an address change or W-4 election change without going to an outside party.

The Disadvantages of Doing Your Own Payroll: Calculating deductions and pay amounts, writing checks and making all of the proper state, federal and local payroll tax filings is time-consuming. It is common for office managers or small business owners to spend four to five hours processing payroll each time they do it themselves; lost time that can add up to dozens, even hundreds, of hours over the course of a year.

While managing your own payroll may save you money in the short term, it could cost you in the long run if you make a mistake and end up owing the IRS back payments and penalties.

You have a lot of other things to worry about in operating your business. Becoming distracted with having to do payroll every week (or every two weeks) can take you away from other important things you should be doing to operate (and build) your business.

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