Making Sense of Small Business Payroll Options
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Making Sense of Business Payroll Options

Payroll options man typing on laptop

Choosing how you process payroll is a big decision. Do you need help figuring out which payroll option makes the most sense for your small business? Consider these payroll options:

Payroll option 1: Hire a professional

You can outsource your payroll to accountants or service companies.

Payroll accountants

Payroll accountants handle all or a portion of your payroll needs. You record your payroll data, and the accountant processes payroll. Payroll accountants calculate employee pay, deductions, and overtime.

Payroll service companies

Payroll service companies also handle all or a portion of your payroll needs. You supply data to the payroll service company. The company processes your payroll.The company prints and mails checks to you. You distribute checks to employees.

Pros:

  • Payroll is processed for you. Your payroll professional takes care of your payroll needs. You do not have to stay up to date on tax laws or calculate payroll.
  • You have time to focus on your business. As a small business owner, your time is valuable. Payroll professionals save you time. You can work on growing your business instead of doing payroll.
  • Your payroll is in expert hands. Payroll professionals are trained to do payroll. They can also advise you about improving your payroll.

Cons:

  • Hiring a professional can be expensive. You may have to pay payroll professionals salaries or fees that cut into your business’s budget. Hiring a payroll professional is usually the most expensive payroll option.
  • You are not in control of your payroll. You will probably not closely monitor your payroll if you hire a professional. You must be comfortable with handing part of your business over for someone else to manage. If your payroll professional reports inaccurate or late information, your business could suffer consequences.
  • You do not build payroll skills. You may not be able to answer your employees’ important payroll-related questions. If you need to run payroll yourself for any reason, you may have a difficult time.

Payroll option 2: Use a payroll software

There are two kinds of payroll software: online and desktop.

Online payroll software

You enter payroll data into the software. The program calculates payroll and taxes. You can print out your checks or use direct deposit.

Online software stores your payroll information in the cloud. Online payroll software automatically updates tax rates. Some online softwares deposit and file your payroll taxes. You can access online payroll software from anywhere with an Internet connection.

Desktop payroll software

You enter payroll data into desktop software. The software calculates payroll and taxes. You print checks or use direct deposit.

You download or install desktop software on your computer. You can only access desktop software from your computer. Your computer’s storage space limits how much information you can save. You are responsible for updating the software when tax rates change.

Pros:

  • Payroll software can save you time and money. Because the software processes payroll for you, you do not have to spend time calculating payroll. Software is often available at affordable prices.
  • Some payroll softwares offer special services. Payroll tax filing services and customer assistance are often available from payroll software. You may be able to add extra features to your software, such as time and attendance tracking.
  • You are in control of your payroll. Online payroll software allows you to manage payroll without having to calculate it.

Cons:

  • There may be a learning curve. You must learn how to use the payroll software. Finding an easy-to-use software can make processing payroll easier.
  • You are in charge of protecting your information. Payroll records contain private information about your employees. If you use a desktop payroll software, you are responsible for securing your computer. Online payroll software usually provides security for you.
  • You might forget a payroll tax payment. Forgetting to pay a payroll tax can be costly. Consider using a full-service payroll software that will remit taxes for you.

Payroll option 3: Do payroll by hand

The government provides free tax tables that you can use to calculate payroll. Use the IRS’s Publication 15 (Circular E). You are fully responsible for the accuracy of your payroll.

Pros:

  • Doing payroll by hand can be cheap. You can use a spreadsheet or a free tax table from the government to record payroll.
  • You have total control of your payroll. When you process payroll by hand, you do not rely on any outside help. You know exactly how and when your payroll is calculated.

Cons:

  • Processing payroll by hand is time-consuming. Payroll is not automatically computed. It can take you a long time to record, calculate and withhold deductions, process payroll, and distribute checks.
  • Your accuracy may be off. Because you compute your own payroll, your numbers may be incorrect. Unorganized recordkeeping can spell trouble for you when you process payroll. You need to report accurate payroll information to the government.
  • You must stay up to date with payroll tax changes. Payroll tax laws often change. It is your responsibility to understand current tax laws. If you miss an updated law and make a mistake filing, you could be fined by the government.

Choosing a payroll option

Every payroll option has its pros and cons. Ultimately, you have to consider the amount of time, money, and effort you want to spend on payroll. Decide your payroll needs to choose an option that fits your small business.

Think an online payroll software will fit your small business’s payroll needs? Try our easy-to-use payroll software. Your first 30 days are free.

This article has been updated from its original publication date of 11/9/2010.