Outsourcing Payroll? How to find the Right Provider

For most growing businesses, payroll processing is one of the first business functions to be outsourced, and for good reason. The only thing more costly than the time and resources involved in calculating wages, reporting and filing, sending paper checks, managing deductions and plan contributions, are the penalties and fees for non-compliance with dozens of regulatory requirements and deadlines.

Outsourcing payroll to a third-party provider is almost always more efficient in the long run, especially for businesses on a growth trajectory. The only issue then, and it is a very important one, is how to select the right payroll vendor for your business.

Try entering a search for payroll vendors on Google and you’ll be flooded with thousands of possibilities. A better way to begin your search would be to obtain some referrals from your CPA and other businesses. If you belong to the Chamber of Commerce, a trade association or have your own business contacts, you can obtain some names and ask about the quality and type of service they provide.

You’ll still want to narrow down your search before contacting vendors to those that are most suited for your business, and the way to do that is by establishing some criteria:

What do You Need to Get Done?

At a minimum, you need a payroll processer to do three things for you: Pay your employees on time; pay your payroll taxes on time; and file your payroll tax forms on time. It would be an added benefit if it can also process W-2 forms, take care of direct deposit, and provide real time tracking of employee hours via a web platform. That same web platform should allow for direct data entry from you that gets processed without the need for data reentry by the provider. Multiple data entry increases the chances for error.

Which Services do You Actually Need?

Depending on the number and type of services you may need, you should look closely at any “bundled packages” that might include services you really don’t need at this time. They can end up costing you more than unbundled services.

Also, depending on how fast your business is growing, how many employees you’ll be adding in the near and intermediate future; your mix of exempt and non-exempt employees, whether you are or will be offering an employer sponsored retirement plan or other types benefits, and your need for calculating special compensation arrangements, such as bonuses or overtime, you may need to consider additional services, such as HR assistance and third-party plan administration.

What You Should Expect from Your Provider

You contract with a payroll processor because you expect reliable and timely service, but with so much at stake, you should know precisely what your provider is willing and able to do to meet or exceed your expectations, including:

  • Reliably fast turnaround
  • Assume full liability for mistakes they make
  • Mistakes are fixed immediately
  • All costs and charges included in contract, including cost of adding or changing employee payroll
  • Fixed fees - no increases without notice
  • Frequent reporting
  • Integration of payroll accounting with your business accounting software
  • State-of-the-art back office technology
  • 24/7 access to technical and administrative services
  • Review process if data is to be re-entered by the payroll processor

Above all else, you should have unfettered access to the data and reporting as your oversight is essential to ensure accuracy and timely filing.

What Should You Pay?

What you end up paying for payroll processing ultimately depends on the number of employees and the specific services you require. Basic services for online payroll processing can start as low as $39 per month with an a la carte menu of additional services that can be added to fit your needs. Again, you should avoid bundled packages that can start as high as $300 per month as they are likely to include services you won’t utilize. If that is all that is offered by the provider, you should move on.

You should shop payroll providers only after you settle on a list of specific needs. Also, be sure to determine whether fees are based on a monthly service or by payroll period, which could be more costly.

Make sure any price quote you get specifically itemizes the fees for the services you requested; and your quote should include the fees for the current year as well as next year.

Try it on for Size

To get a clear sense of a “day-in-the-life” of working with a prospective provider, ask the provider for a list of similarly situated clients that you can interview. Invariably they will bring up issues you never thought to consider. Of course, you will likely be speaking with highly satisfied clients; but you can still expect to gain some valuable insights into the working relationship.

Many of the well-established payroll providers offer online video demonstrations and tutorial - probably the closest you can get to an actual test drive. You will get a sense of their technology and the quality of their product. At the very least, it will trigger additional questions you can pose as you consider the service.

Ask for a copy of the reports the provider issues to its clients to see how easily they can be interpreted and how comprehensive they are.

Finally, you should ask for the customer service line, so you can gauge the quality and responsiveness of those you will be relying on to keep you on track during the start up phase and on an ongoing basis.