What to Consider When Choosing a Payroll Partner for Your Small Business
Payroll — and everything that goes with it — can be confusing and stressful, even to seasoned entrepreneurs. Chances are, when you dreamed of launching your business, payroll and human resource management weren’t part of the picture you imagined.
While some entrepreneurs love dealing with logistics, paying employees incorrectly can invite costly mistakes; the IRS can penalize business owners with up to five years in prison for failure to comply with quarterly payroll tax contributions and other federal payroll laws – just to cite two examples. Those are pretty high stakes!
Choosing a payroll partner may simplify the process and decrease your potential of being non-compliant with local, state, and federal tax laws — especially if you have employees in multiple states. Below are questions and considerations for choosing the right payroll partner for your business.
Is my company large enough to need a payroll partner?
When my business partner and I launched our marketing company, we only had one employee. She and I took distributions from the LLC, so we thought we could get by without a payroll partner. That was a BIG mistake, because although we thought we had familiarized ourselves with all the laws, we missed an important requirement about quarterly reporting.
That mistake cost us over $1,000 in fines, plus hours and hours of stress and paperwork. Additionally, it drew our attention away from managing other areas of our business. Ultimately, we were doing a C- job on payroll instead of finding an A+ partner to help us and spending our time doing A+ jobs on things like marketing and biz dev instead. Our HR and our core functions were suffering because of this choice. Double-whammy!
If you’ve got at least one employee, you may benefit from a basic payroll partner. That’s because payroll encompasses a LOT more than just making sure employees get checks every two weeks.
A payroll partner is responsible for:
- Issuing employee checks.
- Withholding employee and employer taxes.
- Withholding non-tax contributions like retirement, medical benefits, and garnishments.
- Filing quarterly tax reports.
- Issuing 1099s and W2s.
Who should influence my partner search?
After my business partner and I got hit with the fines for our tax mistake, we knew we needed professional help. The most important component to finding a payroll partner can be having a great accountant or CFO.
Now, we have an outsourced accountant who is a critical member of our team. He helps with every financial decision – from payroll to retirement to benefits. The few hundred dollars a month we pay for his services saves us thousands of dollars a month in headaches … and, more importantly, frees up time for the business functions no one except us can do as owners.
If you’re just starting out looking for a payroll partner, chances are an outsourced accountant can be a good fit for your business, rather than a full-time, dedicated HR employee or a founder who wears an accounting hat part-time. The reason it’s important to include an accountant or other advisor in your search for a payroll partner is because they will be able to help you assess how much service you actually need in a partner.
What should I look for in a payroll partner?
Every small business is different, so the complexities associated with the financial management of each varies greatly.
At the core, a payroll provider should make your work-life easier, not harder. It should offer convenience, transparency, and easy to access support. If you’re choosing a partner based primarily on cost, make sure you have a complete understanding of any “extra” fees that you might incur for things like direct deposit or onboarding new employees. Be sure that the partner integrates with the rest of your business software.
The first payroll partner my business used was Intuit. We were already using Quickbooks to track our accounts receivable, so Intuit seemed like a good choice for payroll. It was affordable, easy enough to navigate, and integrated well with the rest of our business; however, we quickly realized we needed help with more than just payroll.
Is payroll really all I need?
While some small businesses may just need a payroll provider, we needed a lot more. We found that, in order to attract the best employees, we were going to need to offer things like competitive retirement benefits and healthcare plans. Then we found that hiring employees meant more rules and regulations around workers’ compensation, liability insurance, unemployment insurance, and lots of other things we hadn’t initially considered.
We decided a Professional Employer Organization (PEO) was the right fit for our business. A PEO is an organization that offers an entire suite of benefits and services to small- and medium-sized businesses, including payroll, health insurance, retirement plans, workers’ comp, risk and liability management, and other HR functions. We chose TriNet as our partner, but there are many PEOs, including Just Works, ADP Total Source, and Oasis Outsourcing. For us, a PEO was an attractive solution over the alternative of cobbling together services from various providers and hoping the technology with each would integrate together into a single solution.
If you’re a growing business, or if you have complexities like offices in multiple states or partners who want to put aside money for retirement, a PEO might be a good choice for your business. The monthly costs can be higher than a payroll-only solution, but significantly lower than an in-house HR expert.
So, what’s the right choice for me?
Like choosing a business structure or a new employee, your decision shouldn’t be rushed into. The time spent getting it right the first time is a fraction of the time it will cost if you make the wrong decision and have to start over. If you have an accountant or similar partner, talk to him or her about the right choice for your business. If you don’t have an accountant, consider that as your first step before moving forward, because he or she can be a critical component to a successful, growing company.