New Payroll and HR Services Outsourcing human resources and payroll functions may no longer be cost effective or even more productive for small and midsize companies.

By Randolph Johnston, Courtesy of CPA Insider

Disclosure: Readers should assume that all software recommendations in this article are exclusively the author's and in no way represent the views of the AICPA or the CPA Insider.

Payroll systems have had more activity in the last five years than in the previous 10. The options for accounting and financial firms today are quite different than the options at the end of the last decade. Key providers are still in the market, but many new players have entered and may do a better job for your company and your clients than the alternative you're using today.

So who are the key players now?

Accounting Software World has a comprehensive list, as does CPA Firm Technology.

But, strategically, you should think about payroll from several directions. There's more to consider than the traditional approach of "there is too much risk -- outsource it and forget it."

Considerations include:

1. Integration with human resources (HR)
2. Activity/project/job costing allocations
3. Web accessibility for employee/client self-service
4. Multiple electronic deposits
5. Confidentiality of the information
6. Ability to handle different payroll conditions (bonuses, farm employees, 401(k), cafeteria plans)
7. Cost per employee/company

New players in the market have innovated in areas that have forced the traditional players to consider matching the features. For example, the Web self-service feature in many of the products is often a mandatory feature in today's market. ACH/electronic deposit was traditionally an additional cost and a fairly expensive option, but now it's widely included in today's offerings.

Common Misconceptions About In-House Payroll Options
One misconception is that outsourcing payroll will take less time than processing payroll in-house. With today's payroll systems providing electronic deposit and Web-enabled systems, and with the option of providing employees with debit cards to receive the funds, many companies can avoid writing checks completely. If you're going to accumulate and enter the hours, the processing steps to complete the process aren't complex, including the governmental filings and deposits. Some vendors, including CYMA, have the ability to process a large number of employees or companies at a flat cost. If you're providing payroll as a service, you can often justify having your own in-house version of payroll software to generate large payrolls.

HR is another key system that should be integrated into payroll, but the offerings by traditional payroll providers may be difficult to use, expensive, not comprehensive, and not particularly effective. If you have 50 or more employees, you should look at using an HR system to accumulate key documentation on your people and to enable you to follow the labor laws more easily. You may have greater success with an in-house system integrated into payroll.

Good examples of products in this class include Sage Abra and Microsoft Dynamics GP for HR management.

Hosted Solutions for Smaller Companies
An area of greater expense today, however, is a company with a few employees. The in-house entry-level payroll fees continue to increase. While commonly less than $250, these systems routinely had no ongoing cost just a few years ago. Even with annual maintenance, compared with monthly costs of processing payroll, in-house processing can be a good option. However, small companies will have the most advantage of using a hosted solution like the offerings from PayCycle and Sage Payroll Services.

Dominant players in the software industry like Sage and Intuit have made concerted efforts to improve the breadth and integration of the payroll. Sage, for example, has created a whole division to do outsourced payroll processing that works with its own products or can be used alone.

Perhaps now is the time for you to take a hard look at your payroll procedure -- and save some money while doing so.

Randolph Johnston is executive VP of K2 Enterprises, a technology consultancy serving the accounting profession. He is a nationally recognized educator, consultant, and writer with more than 30 years' experience in strategic technology planning, systems and network integration, accounting software selection, business development and management, disaster recovery and contingency planning, and process engineering.