The Benefits of Using a Payroll Service

For small businesses, processing payroll can be a complicated and time-consuming task. Among other things, payroll functions can include anything from determining employee wages and withholding taxes, to updating vacation and sick pay and deducting employee-contributed payments for benefits.

Because payroll is so complicated, many businesses use an outside service such as ADP or Paychex. The cost of using one of these services averages about $3 per check.

In general, outsourcing payroll can cost half of what it would to do it in-house. Hiring an outside service also eliminates the need to hire a full-time payroll manager, and you'll free up time to work on other aspects of your business. Other advantages include:

Convenience. With outside services, you simply telephone their offices, give them the hours, deductions, and salary amounts of your employees, and the firm processes the check. Many services also let you update employee payroll information on their Web sites.

Functionality. Many payroll companies also handle employee retirement plans and direct deposits. And a number of them provide management reports, calculate employee tax obligations, and prepare W2 forms for their clients.

Accuracy. Payroll firms know they must do an accurate job if they want to keep your business. You can also can count on them to stay up-to-date with new tax laws related to employee payroll.

Compliance. The payroll function entails a complicated array of state and federal legal obligations. Hiring an outside company can save you money on legal fees, and put compliance in the hands of a business that understands these legal issues.

It's a good idea to get at least three quotes before deciding on a payroll service. Many payroll firms let you do this right on their Web site. For example, to get a quote on ADP's site, simply enter your ZIP code, employee head count, and how often you pay your employees. You should also speak with other small business owners who outsource their payroll, to find out how much they pay and if they're satisfied with their service.