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Outsourcing Payroll

The prize for the “worst single waste of time for a business” must go to those who handle payroll internally rather than outsourcing it. Payroll is the ultimate commodity where, for a miniscule outlay a month as a percentage of payroll, you can offload a complex, time consuming task.

Let’s start by applying my VICE Criteria for identifying whether you are taking on unnecessary additional work:    

Is it something that adds Value to your operation? 

While payroll is an important, repetitive function, doing it yourself adds no intrinsic value. Your employees neither know nor care who does it, and they may even feel better about it if it is handled by a third party.  

Is it worth the Investment to learn how to do it?

While it is repetitive it is very detailed. You can do it through QuickBooks, but you have to ask yourself how long it takes to learn the way the software operates and all the nuances. Your answer may be “I have a bookkeeper with spare cycles” but is that really the best use of her time?   

Does it form part of your core Competence?

No it doesn’t!

Can it be done by somebody Else at less overall cost?

There is no shortage of payroll processing companies. The most visible are ADP and Paychex, but the better option is a smaller, local company that will probably be about 20% cheaper. The cost is not great, and you leverage not only their expertise but the value of the systems that they have created.

There are two big objections I hear from my clients about outsourcing payroll, both of which I believe to be misinformed and off base.   

Firstly, there’s the “do it in-house and save money” argument. This was best articulated to me by one of my clients who said: “I can have my assistant do it (no bookkeeper) and save $2,000 a year. I wonder how much additional time he spent…and how much more when she left unexpectedly and left him in the lurch.  

Secondly, there’s the “cash flow” argument. While it is true that payroll companies do make money on the “float” between when you remit taxes and when they are required to remit them to the IRS, you don’t have to use this service. For years I used a payroll service that prepared the returns for me but didn’t submit them. I was able to get a couple of days “float” out of it which was an incredibly important cash flow factor for me.

Outsourcing payroll meets all the “Vice” criteria and I believe that it is probably at the top of the list when it comes to deciding what to outsource.