If you're handling your own payroll, you could be creating unnecessary work for yourself – and subjecting your process to avoidable errors. From setting up tax records to ensuring that filings and payments are made on time, payroll is a time intensive, heavily detailed part of business administration. A small mistake may lead to costly penalties and fines, as well as possibly creating employer/employee strain. Here's a closer look at the mistakes you may make when you're handling DIY payroll--and why it may be time to consider outsourcing.
You Have to Handle Reporting Yourself
When you outsource payroll, the company that you use may provide you with a package of information on what is required for setting employees up in the payroll system. Many payroll providers also assist with required new hire reporting. Your company must apply to the IRS to obtain an employer identification number (EIN) that's used to remit taxes. Each step of the way – from setting up your company's payment system to ensuring each employee has been entered in the system correctly – requires a detailed understanding of payroll requirements.
Taxes Are Complex to Set Up and Maintain
The challenges of taxes don't stop with setup. If you're going to take the DIY payroll approach, it's important to pay and report on your taxes correctly and timely. However, understanding federal, state, and local taxes – as well as things like Social Security and Medicare – and how individual employees' different deductions may impact those taxes can be challenging. Taxes must be set up correctly before employees are initially paid. Maintaining your own payroll also means that you have to handle tax filings and payments of employee withholdings and employment tax and for the company as a whole. Payments may be due quarterly or even shortly after each payroll. Falling behind or filing and paying incorrectly can create administrative headaches and may lead to penalties and interest charges.
Manage Employee Benefits
Many companies offer an array of benefits to their employees, and contributions must be deducted from payroll. Often, this is complex. For example, your company may offer multiple healthcare plans; each with different employee contributions. Those contributions are further impacted by the employee status – are they just covering themselves or a spouse and family – as well as salary levels. Some organizations tier their contributions depending on compensation, with higher paid employees paying more. To note, employers cannot discriminate against employees who perform the same job responsibilities, but perhaps are paid differently. These calculations may need to be done across multiple types of benefits: health insurance, dental insurance, retirement contributions, life insurance, and more. Outsourcing payroll helps ensure that your deductions are aligned, that what you're offering complies with the regulation guidelines, and payments to carries are sent on time to avoid interrupted benefits coverage.
Mistakes Are Costly and Negatively Impact Employee Morale
There are few things more frustrating to employees than payroll errors that can have a ripple effect. For example, a mistake in state tax deductions can require an unexpectedly sizable tax deduction from an employee's final paycheck, at a time that coincides with the holidays. An employee can be left scrambling to pay bills and for holiday cash flow. Payroll mistakes can negatively affect your employees and result in employer/employee strain. Don't let a simple administrative error have a negative impact on employee wage payments.
Getting your payroll right can take a significant amount of time away from your ability to run your company. Yet payroll is critical to your operations, from keeping your team happy to complying with tax laws. Outsourcing payroll is one strategy that can help companies maintain compliance and frees up your human capital to get more accomplished.