Up Close and Personal: Keeping Payroll In-House¹
Most people don't go into business to manage employee payroll, but doing it right is essential to your business. Just ask your employees how important it is to them to get paid on time.
As an employer, you're responsible for:
- calculating the earnings of employees
- determining withholding for taxes and other payroll deductions like Social Security and Medicare
- recording all payroll activities
- updating records as new regulations, tax rates, personal circumstances of employees and other payroll data change
- preparing and filing accurate and on-time tax documents and returns with federal, state and local tax agencies
- and last, but and most importantly, handing out paychecks.
You can outsource your entire payroll process or do it yourself. For start-ups and small businesses, keeping payroll in-house offers both tangible and intangible benefits.
The Upside and the Down
Many companies choose to manage payroll internally using simple accounting software like QuickBooks, Bookkeeper, Peachtree or NetSuite. These solutions are easy and cost-effective.
The downside to using these in-house tools is (1) the learning curve, especially if you don't know your FICA from your FUTA, and (2) the time involved, which takes you away from the real business of adding value to your enterprise.
On the upside, though, in-house payroll management gives you total control over the accuracy of the information and the cost. Doing it yourself, or having a skilled administrator or your CPA do it for you, is a low-cost proposition. It's also easier to track changes, and to quickly add things like new hires, new tax rates or increases in health-care benefits with no lag time.
Such tight internal controls also lessen the chance of embezzlement, unauthorized charges to the company credit card and other forms of employee fraud. You can keep an eye on your cash as it comes in and goes out.
If you aren't up to speed on how to manage your payroll, talk to your commercial bank rep. These business professionals are happy to show you how to use the various payroll software systems.
Using Your Company's Accountant
Even start-ups and small businesses use accounting services for tax preparation and to manage basic bookkeeping functions. These money pros know your business, and they know the tax codes. They're just phone call away.
When you are small, you don't need the services of a licensed CPA. A trained bookkeeper can manage payroll at a lower cost.
Still, there's risk in having a single individual manage all your company financials. Having one person handle receivables, payables, payroll and taxes leaves you vulnerable to a variety of scams. Even if the bookkeeper is a long-time friend or family member, it's wise to avoid too much temptation.
Using your accounting firm to manage payroll delivers measureable dividends. These firms are set up to automate the payroll process. Your company accountant doubtless knows how to use the software and also can identify ways to cut your payroll costs, lower your tax liability and integrate everything from service delivery to reviewing the detailed statements provided by your commercial bank.
The cost of a bookkeeper or an accountant often is offset by the savings they can deliver in your daily business operations. Your accountant will work with you, your bank representative and the tax agencies to save you not just money, but also time.
Here are a few reasons to keep payroll functions in-house:
- Catching payroll errors quickly. When you outsource payroll, you may not discover errors until employees receive their pay checks. Looking things over regularly lets you catch mistakes in advance, so you avoid unhappy employees and tax collectors.
- Customization. Handling payroll in-house makes it easy to do things your way, and to customize the process. A payroll processing service may not meet the unique needs of your individual company.
- Data security. In an age of data breaches, the best way to have control over the security of all personal financial data is to keep it within your four walls.
- Integration with other business systems. Company data and metrics are more easily merged and analyzed when everything is accessible. It's simpler to determine the cost of acquisition of a new client, or merge your payroll and financial systems, when everything is on hand.
To help you decide, ask your bank rep or accountant to help you analyze what it is costing you to handle payroll management in-house vs. what outside companies are charging.
Be sure to include the time you or your employees spend:
- Gathering payroll-related information
- Calculating wages based on time cards, performance bonuses, annual raises and other variables
- Determining local, state and federal taxes due quarterly and annually
- Depositing taxes with the appropriate authorities
- Staying on top of changes in tax regulations
- Buying and learning how to use a payroll software package, and the training required to use it properly.
Can you handle payroll in house? Absolutely!
Should you? That's a decision to make after consulting with your accountant, your bookkeeper, and the bank representative who can integrate and streamline many of your payroll functions, often at no cost.
Track the hours, crunch the numbers and decide for yourself if keeping payroll in-house is right for you.
Learn More about payroll options available from Union Bank.