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Changing laws make in-house payroll a riskier proposition



The key to any successful business is to focus on what your company does best and then continue to improve upon that. Perhaps Andrew Carnegie said it best: “Here is the prime condition of success: Concentrate your energy, thought and capital exclusively upon the business in which you are engaged.”

hart wayneBy handling payroll in-house, businesses are dedicating employee time and money toward tasks that are not revenue producing and that have nothing to do with the core business concept. With an in-house payroll staff, business owners aren’t concentrating energy, thought and capital on their business. Instead, they are dedicating resources toward handling tasks that could lead to fines and penalties if not handled properly.

When processing payroll in-house, the best-case scenario is that the staff processes paper work correctly and on time, avoiding liabilities. But because payroll is not a core company function, in many cases it is done inefficiently without contributing to profits. The worst-case scenario: mistakes occur that can result in stiff penalties and fines. In business, risk is acceptable if it leads to a chance for reward. That’s not the case with payroll.

Why the reluctance?

There are three primary reasons companies hesitate to outsource. The first is when a business believes what it does is too complex and unique for a third party to understand. This leads them to self-develop a payroll system they believe only in-house employees could efficiently manage or understand.

The second is a historical bias. Many businesses have been handling payroll in-house since their inception and as the company grows, they do not acknowledge the increasing difficulty of keeping up with payroll services.

Lastly, some businesses simply believe outsourcing is the more expensive option.

Historically, human resource departments were not responsible for the complexities of tax filing or government compliance. Now, the rules of the game have changed. Laws have slowly become more complex and involved, leading to more noncompliance penalties. The federal government has bolstered enforcement of compliance laws as a way to make money as a default tax.

Leave payroll to payroll experts

As the nature of these laws changed, so did the nature of human resource departments. Sustaining an in-house payroll department is much more costly these days. HR representatives require more thorough and ongoing training. A company often needs to hire more employees (and increase overhead costs) to minimize risk of oversight.

While many believe outsourcing is expensive, cost analysis has proven the opposite. The combined cost of payroll employees’ salaries, payroll infrastructure and potential penalties is usually much more costly than outsourcing payroll services.

Outsourcing payroll services can also allow businesses to use employee resources in new, productive and profitable ways. Moving payroll employees to a role in which they can generate money for the company is a more effective way of doing business.

Think of outsourcing payroll as an insurance policy. Although in-house employees may be able to handle the job, when a mistake is made and the business is found non-compliant on local, state or federal taxes, the business is liable for the penalties. Outsourcing payroll safeguards your company from these tax liabilities and penalties, insulating your business from thousands of dollars in fees.

When deciding whether to outsource payroll services or maintain an in-house staff, keep in mind that outsourcing allows you to utilize employees in a profitable manner and eliminates liability on local, state and federal tax filing. You wouldn’t go without water and fire damage insurance for your company. Payroll should be thought of the same way. The time and effort put into maintaining a perfect in-house payroll function is not profitable and could take some of the focus away from what your business does best.

If you decide to transition into outsourcing your payroll processing, look for a provider that has a reputation for outstanding customer service and can customize their software to work with your existing system. This will make the transition as seamless as possible.

Wayne Hart, shown, is the executive vice president, sales of JetPay Payroll Services. JetPay Corporation offers products for the payments, payroll and prepaid card industries. He can be contacted at

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