Written by Alverta “Sandy” Steinwedel
Many small to mid-size business owners are always trying to save and limit business spending. With over 61,000 small and mid-size businesses with under five employees in the State of Maryland, many owners believe they are able to prepare payrolls in-house.
In 2020, 32% small business owners did their payroll in-house; 24% outsourced this responsibility and 43% used a third-party provider service for the reporting but completed their payroll internally. In summary, around two-thirds of small to mid-size businesses hire a third-party to assist with payroll preparation. Why?
Every year the Internal Revenue Service, Department of Labor, as well as the State of Maryland penalize small business owners millions of dollars for payroll errors. These penalties were not due to non-compliance but more to the lack of knowledge and understanding of huge tax codes, unique regional regulations, and the ability to hire employees from multiple states which causes nexus issues.
There are pros and cons to both in-house payroll and outsourced payroll services. But over 40% of small business owners say bookkeeping and taxes is the worst part of owning a business. They have determined that time saved by hiring a third-party provider out weighs the cost of outsourcing.
However, still many business owners believe there are some positive reasons to tackle the payroll challenge; such as the following:
- They have better control over the payroll process and human resource issues, such as: time cards and overtime.
- Many small business owners use an in-house accounting program which includes a payroll module. Having a platform with a full integration eliminates additional bookkeeping time.
- As an owner, you have the ability to hire a bookkeeper who has knowledge in bookkeeping, payroll and human resource issues. Having an individual with these skills will eliminate the need to outsource.
These are all positive reasons, but are they worth the time, cost, penalties and frustration? When you outsource your payroll, you achieve the following:
- You are saving on cost but research has shown that many employees live paycheck to paycheck. With a third-party provider, you are buying their knowledge and reliability especially with the consistently changing rules and regulations.
- The time saved by the owner and staff could be better spent on other tasks. In addition, if an issue occurs that causes you or your bookkeeper to be absent for an extended period, the third-party can produce the payroll and eliminate a possible financial burden for your other employees.
- Because of the challenges and reporting issues, many payroll services are integrating with in-house payroll with limited issues and training.
In conclusion, with the passing of the Affordable Care Act and the many Covid-19 government initiatives for businesses, small to mid-size business owners were faced with huge payroll changes and opportunities which caused many businesses to hire a third-party provider. These are unusual times but it maybe the new normal and non-compliance by a business owners will result in substantial penalties. Do not take this issue lightly.
