For many of us in small companies, this is the time of the year when we ask the question “should we process our in-house payroll or should we use a service?” We often look at cost as a major consideration. While important, there are many other factors to be considered.  Let’s look at a few by considering the goals of the payroll department.

Accurate and Timely Payroll Processing

The payroll department’s primary goal is to pay employees accurately, on time, and in compliance with government rules and company policies. This goal is critical for most small businesses for many reasons. Payroll is often the largest expense of small businesses. The services provided by employees are often critical and payroll mistakes can have a negative impact on employee satisfaction.

The accuracy of your payroll affects your company’s compliance with federal regulations. Inadequate record-keeping can expose your company to fines and penalties. Adherence to company policies is also critical and some employers have union agreements to adhere to.

The argument for payroll outsourcing is the belief that it is complex and reliable, but you might not hear as much about the value of reliable, in-house payroll processing using automated payroll software. The fact that preparing your own payroll puts you in complete control over this essential employee benefit and gives you access to all current and historical payroll information for your company, at any time, without any barriers. Managing payroll, tax filings, and payments in-house puts you in control of your organization’s compliance with payroll and tax regulations.

Second Goal – Integration

Does your payroll integrate with your General Ledger?

Consider your system integration requirements carefully. Integration between your payroll solution and your accounting solution ensures automatic creation of general ledger entries and facilitates accurate financial reporting. Integration ensures that the general ledger is updated and using the most recent and accurate employee information.  With Sage 300 in-house solution the payroll is integrated with a full financial system, payroll can post transactions directly to the general ledger in seconds. If you have a high volume of ledger accounts, or complex postings requirements such as splitting the cost of an employee’s pay between two projects, an in-house solution can usually do that more easily than outsourcing payroll to a bureau.

Does your payroll integrate with your Bank to allow for easy bank reconciliation?

With many in-house payroll system as is the case with Sage 300, the processing of pay cheques and/or direct deposit integrates with the bank in the software facilitating ease of bank reconciliation.

Does your payroll integrate with Project and Job costing to better manage costs?

Do you need to have your labour costs allocated to projects?  Management is often interested in the cost allocation process that requires you to identify, aggregate and assign costs to cost objects. A cost object is an item or activity, such as a department or product that requires you to separately weigh costs. The integration of payroll to your Project and Job costing module, would save time and provide accurate and timely reporting of costs for projects.

Does your payroll integrate with your HRMS?

Integration between your payroll and HRMS will significantly improve productivity.

The benefits of having integrated HR capabilities with the payroll software include:

• No duplicate data entry thus reducing the probability of errors and speed up data entry.
• Less paperwork saves time that you can spend on strategic projects.
• Integrated reporting allows you to perform better analysis and planning.

To summarize benefit of integrated payroll solutions to enjoy the biggest time savings, it’s important that your payroll information flows smoothly back and forth among other systems such as your general ledger, HRMS and Project and Jobs software. This minimizes the amount of manual data entry or importing and exporting of files that you have to perform.

Managing Goal one -Yes integration would be great but payroll is so complex!

The complexity of payroll is often used as an argument for outsourcing payroll.  If payroll is in-house then you will need someone on your team with a good understanding of payroll and statutory reporting.

Even with a powerful payroll system with smart checks and balances, you still need to have someone with an understanding of payroll who can uncover potential errors. Keeping track of legislative updates, bargaining agreement interpretation, and monitoring compliance is a specialized job function. Depending on the skill mix of your staff, this could have an impact on which option makes the most sense for your organization.

If you don’t have someone in your company with these skills and your payroll is fairly straight-forward, then outsourcing may be a better option. If you have a skilled and experienced payroll team, then in-house payroll processing becomes easier.

However, what most small business owners don’t realize is that there are innovative technologies that exist today which eliminate most of those concerns.

Today’s payroll software is affordable, intuitive, easy to use, and integrates with accounting solutions, thus helping to simplify the payroll process even further. In bringing these two fundamental operations together, small businesses can scale at a more rapid and profitable pace. Learning and managing your own payroll software may seem daunting at first, but you will find that it will save time and resources in the long-term.

Managing compliance – You are ultimately responsible for tax compliance

The hassle of tax compliance is one of the reasons that some small to midsized businesses decide to outsource payroll. But many don’t realize that outsourcing doesn’t eliminate your compliance responsibilities. If the outsourcer fails to file your forms or deposit tax payments, the tax man will come looking for you.

In order to make timely tax payments and filings on your company’s behalf, you must supply the payroll outsourcer with adequate payroll information. Instead of having to meet the government’s filing deadlines, you’ll need to provide data to your outsourcing provider to meet even earlier deadlines.

As you can see, using a payroll outsourcer does not absolve your company from liability for noncompliance with payroll taxes. If your payroll service makes a mistake in processing payroll or filing and submitting your payroll taxes, the provider may pay resulting fines, if your contract specifies such terms. However, if you miss a deadline, pull the wrong data, or make errors in the data you send to your payroll service, your company will be liable for any and all resulting fines and penalties.

In-house payroll puts you in control

Perhaps one of the best reasons for keeping payroll in-house is that you have the ability to control all the reporting and data. So should any questions from your employees or bookkeeper or CPA come up, you are equipped to address them immediately!

Let’s examine several aspects of payroll control that in-house payroll can provide better than outsourcing:

Outsourcing may not save much time over in-house payroll

The primary benefit of outsourcing is supposed to be the time savings of letting someone else handle your payroll, coupled with the reduced labor costs associated with payroll preparation. However, you may not save as much time as you think you will with outsourcing. Businesses are often required to use an online interface and enter some of the payroll data manually.  That is, it’s a guarantee that you or someone on your staff will have to provide the payroll data (timesheet info, paid time off, salary information, and so on). If you already have to collect and compile that information, how many extra steps do you save over completing payroll with in-house software?

With modern payroll software it really doesn’t take much longer to handle payroll in-house. Plus, when you keep payroll in-house, you save time by not having to communicate with a third party.

Outsourcing isn’t flexible for last-minute changes

In-house payroll software places all the control within your company. It can be flexible, allowing you to cut special on-demand checks at the last minute. It enables you to run trial payrolls to make sure everything is correct.

In contrast, outsourcing is not always very forgiving. If you need to change payroll details for an employee at the last minute, it may be too late to make the payroll run.

Generally, in-house payroll offers tighter control, better access to information, and safer compliance than outsourced payroll.

Catch Payroll Errors before Paychecks go to Employees

One of the downsides of using outsourced payroll providers is that errors are often detected after cheques have gone out to employees.  A big advantage of using Sage 300 – Payroll is that the gross pay and net wages of every employee are easy to review in detail before cheques are printed or direct deposits are calculated.  With Sage 300 Payroll, errors can be fixed during payroll processing instead of adjusting after the cheque have been delivered or on the next pay cheque.

In-house payroll uses your existing payroll processes

Outsourced payroll services tend to be less flexible than in-house software because they rely on standardized processes that are designed for a high volume of transactions.

Customers must adapt to these processes in order to use the service. If your organization tracks a variety of pay rates, shift differentials, overtime, pay cycles, and other variations, an in-house system may be a better solution for you.

Your company can customize in-house payroll software to match your corporate processes exactly. For example, you can also customize your general ledger account numbers to better meet the needs of your accounting system, track secondary jobs, and create templates to import information from timecard software.

Retain better access to your payroll information without barriers

When you own your payroll software, you also own your payroll database and all of your employees’ history. Period. You don’t have to wait for access to your own payroll system.

An in-house payroll software system stores all of the data you need to produce comprehensive, customizable reporting and analysis, so you can perform compensation planning and analysis. It also centralizes the data you will need for compliance with government mandates and provides record-keeping for proactive defense against any employee litigation that involves compensation.

Good business decisions require timely and accurate information along with control over the data. In-house payroll software like Sage 300 Payroll provides easy access to built-in reports that allow you to analyze every aspect of your payroll – from benefit costs to salary trends and seasonal employment numbers. Better data control enables more effective business decisions without the added fees and delays of customized reports from outsourced providers.

Over time, in-house payroll costs less

Cost savings is perhaps the most mentioned factor when evaluating the benefits of in-house payroll vs. outsourcing.  At first glance, outsourcing payroll seems cost-effective.  But a closer look reveals a number of fees that can really add up.  There’s often a base account fee plus a fee per pay cheque, along with additional fees for tax-related paperwork or services.  And if you need a report that you can’t produce with their standard reporting tool, tack on another fee. More likely than not, these fees increase over time and you have little control over it.

When you buy in-house payroll software, your up-front expenses include the software license and an annual maintenance and support plan that provides you with software enhancements, tax table updates, and technical support. Costs drop dramatically in the second year of ownership and beyond, because the only ongoing expense is a maintenance and support plan.

In contrast, outsourcing expenses stay the same every year or could possibly increase. Outsourcing fees depend on several factors, including how often you issue paycheques, number of employees your company has, and how many additional services, such as T4 printing and mailing, you require. Because you never own the ability to create your own payroll, the expenses simply compound every year.

Conclusion

Payroll is an important process in your company and not to have it integrate into your general ledger, bank, project and job costing or HRMS severely limits your ability to make timely management decisions. The benefits of in-house payroll include:

• Greater control over the payroll process.
• More flexibility to react to last-minute changes.
• Anytime, on-demand access to payroll information and history.
• Powerful reporting and analysis.
• Strong data security capabilities.
• Internal control over tax compliance.
• Lower payroll costs over time.
• Increased efficiency due to integration between systems.

Using integrated, in-house payroll software can ensure accurate, timely payroll and a solid return on investment. While reducing the cost of processing your payroll, you can also gain more control over its accuracy.

One of the major consideration that often arise is whether or not payroll should be outsourced or processed in-house.  A google search will soon fetch a large number of articles written on this topic.  However, a quick analysis will soon reveal that there is often a focus on the cost with little regard to or focus on the end result.  It like trying to find a doctor for your child.  You would probably look for the best doctors then you would look for the cheapest of the best doctors’ vs looking for the cheapest doctor and then finding the best of the cheapest doctors. In other words, to make the best decision you begin your considerations with the end in mind, the good health of your child. So in spite of the many articles out there the vast majority of articles written on this subject most never address the real business decisions for whether to outsource or insource payroll.

Why now?

The payroll year is always the same as the calendar year thus at the end of the year, in the months of November and December, during this festive season we are often confronted the decisions regarding payroll.