Inspiration and Information for Starting Your Business

Making Cents of Payroll and Deciding Whether to Outsource

Whether you are a new entrepreneur that has just incorporated your business or an existing small business owner, engaging a payroll service or handling payroll in-house is one of those core decisions that must be evaluated each year.

When it comes to payroll, there are three basic options.

Full Service Payroll with Tax Impound

There’s full service payroll with tax impound. This entails providing each employee’s pay rate and number of hours worked for a given period to an outside service, such as ADP or Paychex. The service provider then prepares the checks and/or direct deposits as well as charges the business checking account for the net pay plus all tax withholdings and employer taxes.  The service will then charge you a monthly fee a week or so after the payroll runs.

The advantage of this option is that the service makes all your payroll deposits for you. You can focus on your business and leave the mundane, yet important, task of paying the IRS to the payroll service.

The disadvantage of this option is that it is somewhat costly, and you are pretty much stuck with the service for the year to avoid the confusion associated with paying the IRS.

Partial Service Payroll

Another option is partial service payroll, where an outside entity handles the checks and you make the payroll tax deposits.

The advantage of this option is that your regular accountant may be able to handle this and that the process should be very accurate.

The disadvantage is that there are penalties and fees if you are late.

Handling Your Own Payroll

A final option entails doing your own payroll. QuickBooks, for example, provides an option for you to run your own payroll checks.

The advantage of this option is you have direct control over payroll processing, and you may experience more timely transactions.

No matter what you decide, there is an option that fits the skillset of you and your firm. The key is to carefully consider the options and determine what makes the most sense.

  • barrywong

    Quick questkon.

    We are looking into using ADP as a payroll management system

    any thoughts or experience? They seem large and I hope that is not a negative aspect.

    Thanks