In the past month or so, a few clients who are adding people asked me if I knew anything about the benefits of using a payroll provider. So I dusted off a blog post I wrote but never published for a previous employer and sent it to them. They found it helpful and suggested I share it with others. My answer to the question? A good payroll provider can save you time, help avoid tax penalties, and the right one can be cheaper than hiring a dedicated employee for the job. At a minimum, a good payroll service will get checks to both the IRS and your employees on time – and that’s a huge burden off your shoulders.
Even if your business is on the small side with a stable turnover rate, a salaried staff, and minimal changes in tax obligations, you should probably consider whether a payroll provider makes sense for your business in a world where tax laws are complex and change on a regular basis. In addition, there are staffing situations that can quickly complicate your situation, including the presence of hourly employees, employees in multiple states, employees who receive tips as part of their compensation, or an illness or departure of that dedicated employee who handles payroll services. Perhaps the best reason to consider outsourcing your payroll process goes back to the importance of being on good terms with the IRS and limiting potential tax issues from distracting you from your company’s mission and from affecting your bottom line.
Companies looking at payroll providers generally fall into two categories: “New to Employees” (people hiring their first employee or worrying about their compliance requirements) or “Switchers” (people who aren’t happy with their current provider). If you fall into one of these categories, here are five questions you might ask to find the perfect fit for your small business, organized under the topics of services and payment structures, ease of use, level of customer service, 1099 contractors, and security track record.
- Which services do they provide and at what pricing structure? With so many payroll providers to choose from, consider whether you’re comfortable running payroll yourself and filing taxes electronically. If so, a do-it-yourself (DIY) solution is probably a good fit. However, if you want someone to handle everything for you – from setup, to running payroll, to filing taxes on your behalf, then a full service solution might be a better fit. It is really a matter of preference.
- Is their website easy to use and can I take a look under the hood? A simple but fundamental question to ask a payroll provider is how does their actual service work and is it easy? Is their website intuitive? Are they mobile- and tablet-ready? It’s important to make sure a payroll provider fits the way you and your employees operate. Request a free trial; some providers offer as long as one or two months at no cost. This will cut the wheat from the chaff rather quickly so you can focus on a smaller number of providers.
- How available is their customer service? How often will you be communicating with the provider, and is their customer service prepared for the commitment? Reading reviews of payroll providers can quickly get you an answer as to their level of client commitment. Businesses will be honest on third party review sites like Top Ten Reviews, indicating how detailed, security and service-oriented a payroll provider is. Many services already provide 24-hour help via phone/email/chat in time zones around the world, in addition to FAQ’s on their website. Also be aware that there may be different price ranges for customer service even within the same provider. Don’t be afraid to ask questions like “is someone going to be available to help us even on the holidays?” if that is something your small business may need. Of course, there’s an argument that if you’re contacting customer service too often, that payroll provider is probably not for you.
- Do you use 1099 contractors? Many small businesses get confused with the difference between 1099 contractors and W-2 employees, but the distinction is important, especially to the IRS. All small businesses should pay close attention to the rules and classify their workers correctly. Likewise, when finding a payroll provider, you should carefully research your options so that you’re choosing one that can help you pay and file taxes for the type of workers you have (W-2 or 1099 contractor).
- Have they ever had a security breach and how did they respond? While most payroll service providers commonly have good minimum levels of security, you should do your due diligence. Ask your potential providers detailed questions about security all the way from levels of employee access to how secure their data centers are. Has your company ever had to respond to a security breach and what preventative measures did you take to make sure it didn’t happen again? It may have been listed fifth here, but Security is no longer a given – be sure to choose a provider with a stellar track record.
As noted above, an important feature for any payroll service is scalability as you grow and require different services. While you might be a small, local firm now, do you plan on operating your business outside the United States? Will you eventually have employees that are represented by a union? Do you now (or plan to in the near future) offer 401(k)s and other deductions? These are all examples that point to the potential need for a payroll provider.
A Google search of payroll providers returns a daunting list. Asking someone you trust for a referral is a great place to start your search. Another would be asking for references from other similar businesses in your area.
Your payroll provider search will be shorter and much clearer if you start off discussions with the main five question themes above. You should also make sure that during the vetting process you know what the payroll provider will expect from you to do its job. Good luck!