New Year, New Payroll

The end of the year could be the right time to transition to outsourced payroll.

While you're staying late at the office doing payroll calculations and worrying about how many IRS regulations you might be unintentionally violating, other small business owners are leaving work early for some well-deserved downtime. Payroll outsourcing is bigger than ever for one very important reason: It saves small business owners hassles.

Although today's payroll providers cater to businesses of all sizes, they are particularly popular with small businesses, where payroll responsibilities often fall on the owners. With payroll outsourcing, an owner's weekly time commitment for payroll functions can drop from hours to minutes.

A good payroll service provider can facilitate the transition from in-house payroll to payroll outsourcing at any time. However, there are several advantages to making the transition at the end of the year. With 2008 just around the corner, now is the right time to rethink your company's payroll administration and consider a third-party solution.

Benefits of Year-End Transition
There are four main reasons why it's smart to start payroll outsourcing at the beginning of the year.

  • Gain peace of mind. The most common reason businesses transition to payroll outsourcing at the end of the year is to gain peace of mind. From a payroll standpoint, the new year represents a clean slate. The assurance that payroll experts are in charge of the company's reporting and legal requirements for the entire year is usually enough to convince business owners that a year-end transition makes sense. HR resources, such as compliance forms and policy documents, built into a payroll service can save a great deal of time and energy.
  • Start the year off right with employees. Offering the option of direct deposit through an automatic, outsourced payroll process will show your employees that you're concerned with making their lives easier, not just yours.
  • Prepare for next year's growth. Businesses anticipating significant growth in the coming year usually consider switching to a payroll provider at the end of the year, especially if their strategic plan necessitates the addition of several staff members. Most business owners agree that spending time with new staff is a better use of time than processing their payroll.
  • Avoid mid-year data rollover. The biggest advantage of transitioning to a payroll service provider at the end of the year is that payroll data rolls over on January 1. Even though thousands of businesses transition to payroll outsourcing throughout the IRS year, mid-year transitions require the extra step of transferring and translating existing payroll data to a third-party provider.

What to Look for in a Provider
If a year-end transition to payroll outsourcing sounds like a good idea, you need to start shopping for a provider now. Not all payroll providers are created equally, so you'll need to know what to look for in a quality provider before beginning your search.

Complete range of services. Your payroll provider has to be able to meet the payroll demands of your business. That might sound obvious, but plenty of business owners have signed on with payroll outsourcing companies and then discovered that their provider wasn't able to meet their specific needs.

Look for providers who have successfully integrated technology into the process. Payroll administration has become increasingly reliant on technology to perform functions such as data collection, record-keeping and reporting.

But technology isn't the only feature to look for in a quality provider. As a business owner, you should evaluate each provider's ability to remove as much of the payroll burden from your shoulders as possible.

A payroll provider should offer full tax-filing capabilities, including the ability to automatically calculate, deduct, pay and file all taxes including federal, state and local.

In addition, providers should offer an employee account center that allows employees to directly access their pay information on their own, as well as a customer service department to answer your payroll-related questions at any time.

Another feature that should be non-negotiable is direct deposit, which eliminates frequent trips to the bank and the need to cut payroll checks every week. The best payroll providers give you the option of cutting checks, but also provide the option of direct deposit at no extra charge.

Reputation. Your payroll provider must have a solid reputation for providing top-notch service to businesses of similar size and scope. If your payroll gets bungled, your employees will lose faith in your company. Likewise, a failure to properly meet reporting requirements can land your business in hot water with the IRS and other regulatory agencies.

The bottom line is that you can't afford to trust anybody with your payroll requirements. Stick to reputable companies with a proven track record of getting the job done right. Find out which companies are recommended by industry experts and which have won awards. Some of the names to look for include full-service online payroll provider SurePayroll, and full-service traditional call-in/fax-in services ADP and Paychex.

Ease of use. Since you'll be required to interact with your provider regularly, it's important that your payroll solution interface is easy to use and accessible from wherever you do business. In the past, payroll providers required their clients to call in payroll at a specified time each week. Many of today's payroll services have overcome this obstacle by providing web-based interfaces.

In addition to flexibility, another benefit of entering the data yourself and viewing the results in real time is that you don't have to worry about data entry clerks making errors when you give them information over the phone.

Most importantly, providers who offer an online platform for their services have taken the time to study small businesses and have integrated their findings into the design of their products. If a payroll provider offers an online platform, it's safe to assume they understand the payroll needs of small business owners and are in tune with your priorities.

Michael Alter is president of SurePayroll. His payroll outsourcing firm processes and remits payroll taxes for more than 18,000 small businesses across the country.

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