For anyone planning to start a new company or preparing to expand and add employees, one of the many important decisions that must be mad is how to manage payroll.

There are a number of options for managing payroll, and determining the best approach for each business depends on a number of factors including:

  • Current, and planned, number of employees
  • Compensation type (hourly, salaried, commission)
  • Level of in-house expertise
  • Comfort level with outsourcing

Small Business’ Option 1: DIY Payroll

If you only have a few employees, or are uncomfortable with outsourcing payroll, the Do-it-Yourself approach may be a good option. However, managing the payroll function of a small business involves more than producing paychecks with accurate withholding amounts. When considering this option, there are several things to keep in mind:

  • An employer must remit (pay), by a specific time, all withheld funds along with the taxes allocated to the company.
  • Quarterly and annual reports must be prepared for various federal and state taxes. Notifications are generally required to the state whenever someone is hired or terminates employment.
  • In small businesses, the payroll function can also involve the implementation and management of employee benefit plans. (Health insurance premiums must be accurately calculated and withheld from paychecks for dependent coverage, etc.) These are added to company-paid amounts for employee coverage. The resulting total must match the itemized bill for insurance coverage of the worker and his/her dependents.
  • Likewise, small business payroll management requires close attention to retirement plans. This is especially important for plans permitting employee contributions that are withheld and remitted from paychecks.

If these tasks seem daunting, it’s worth considering one of several options for outsourcing your payroll function.

Option 2: Full Service Payroll Outsourcing

Another option for small businesses is to outsource the payroll function entirely. A full service payroll outsourcing company will typically issue all the paychecks, handle payment of payroll taxes, and file the proper governments reports. They should also be responsible for keeping up with changes in withholding rates and navigating the complexity of revisions to payroll reporting forms. Some of these companies even offer their own employee benefit plans and conduct all the administrative effort. However, this option is not cheap. A full service payroll service company will charge small businesses per paycheck, often going as high as $5 per paycheck.

Even if you go the full service route, you won’t be completely off the hook. Contracting with a payroll service company still requires that you convey details about hours worked per employee and staff changes.

Option 3: Payroll Assistance

Between the DIY and Full Service options, small businesses may choose to outsource only a portion of the payroll function. This option requires additional effort from you in exchange for a more cost effective option than the full service provider route. One such option is to use the assisted payroll module in QuickBooks, which allows you to create paychecks while the program determines withholding amounts and prepares payroll reports.

QuickBooks’ assisted payroll option offers small businesses a major advantage in the seamless integration of payroll with their general accounting platform. Converting data from the reports of a payroll service company into the general accounting platform almost always results in errors for small businesses using separate platforms. Even experienced bookkeepers have difficulty separating payroll tax liabilities consisting of paycheck withholding from the company payroll tax expenses. With a proper setup, this problem is eliminated when using QuickBooks for both payroll and general accounting.

One disadvantage of the QuickBooks payroll module option is that making mistakes is easy and correcting them is difficult. You may find that hiring an expert to review your QuickBooks payroll module is well worth the added expense to your small business and can end up saving you money in the long run.

Conclusion: How to Tackle your Small Business’s Payroll Choices.

Determining the best approach for managing your payroll depends on the complexities of your small business, availability of in-house resources and the amount of control desired. The advantages of outsourcing all or part of the payroll process are compelling for most small business owners. But  if you are uncomfortable with outsourcing, or desire a high level of control, the DIY or QuickBooks module for assisted payroll options may be better suited to your requirements. Regardless of the approach, it is always recommended that you have some expert oversight of the payroll process