Pros and Cons to Payroll Systems

Payroll systems for the most part, are generally classified as being in-house or outsourced. Sometimes, very small employers generate payroll on a manual basis, but in this world of automation this can lead to errors in reporting and compliance. A good system will not only allow you to pay employees and file payroll taxes, but also help you comply with federal, state and local regulatory authorities. Depending on the circumstances with your business, it may be advantageous to consider the outsourcing option if you handle payroll internally. To help you make the decision, consider the pros and cons of doing it in-house versus outsourcing to others.

In-House System

To do your payroll in-house, you will need to purchase/lease software designed specifically for your businesses. Some newer systems are available in the cloud. Depending upon your computer hardware capabilities, you may also need to upgrade or replace some equipment. Also, depending upon the size of your organization and the number of employees, you may need to hire a payroll specialist(s). If you do need to hire someone, make sure the employee has multiple years of experience managing payroll and related taxes and filings. The payroll software will calculate wages and deductions, produce reports for verification purposes, store the data and issue W-2’s. Make sure it can handle direct deposit, and offers manager and employee self service. The biggest disadvantage to maintaining your own in-house system is the need to buy or lease, and then maintain software and possible hardware, which can be expensive. Depending on your size, you may have to employ payroll staff, which is also expensive. Don’t forget to think about who will manage your payroll if your staff member is off due to planned vacations or unplanned illness. A software specialist may be required to set up the system and then ensure that only certain employees have access. Staff may need training, and you may have to pay for technical support when system problems occur.

Outsourced System

The outsourced system involves engaging an outside provider to handle your payroll and payroll tax filings and other obligations. Depending upon the vendor you choose, the range of tasks provided by the employer and provider will vary. As an example, the payroll servicing company may process your entire payroll, plus handle payroll tax filings and benefits administration. Some of the responsibilities may be handled by you. Make sure you get a clear understanding of duties performed by you and the vendor in writing. The biggest advantage to an outsourced system is that it is a significant time and cost saver. Most providers can process your payroll, regardless of size, and you do not have to hire and train a payroll staff or invest in payroll software. Additionally, the vendor generally has many employees, so you don’t have the added pressure of being dependent on one or two of your own associates. The payroll vendor will stay abreast of ever changing regulations that may impact your business. Finally, when you outsource, not only do you usually yield cost savings but you also gain more time to concentrate on your own business.

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