How Payroll Outsourcing Services Work: Ultimate Guide

Payroll outsourcing can lead to big cost savings and provide access to payroll management experts, but doing so also comes with unique challenges and risks. Our 2023 guide takes you through the ins and outs of how payroll outsourcing works and how your company can best evaluate a possible outsourcing strategy. Reduce risk and save time by relying on a partner to help manage your tax fulfillment needs, including  compliance, filing, and administration. Ceridian’s payroll outsourcing experts provide integrated garnishment administration and in-house tax services under a single contract.

• Through Wave Payroll, you can pay employees and contractors via direct deposit and automatically generate W-2 and 1099 forms for tax season.
• They need timely access to timesheets (for hourly workers), and notice of changes to a worker’s employment terms or tax status.
• You’ll need to account for these deductions when processing payroll and send money to the correct benefits program.
• While many cloud-based programs for payroll data management use encrypted servers and firewalls for security, they are juicy targets for malicious activity.
• Other companies such as Payoneer and ADP Global Payroll don’t have set pricing.

The payroll service will likely need access to that information to calculate and deliver payments via payroll checks or direct deposit. Most payroll service providers stay up to date with the latest technology because it allows them to take their service to the next level and provide the best for their clients. This includes automation and AI capabilities, which allow payroll professionals to focus on optimizing your payroll system, ultimately making it more efficient and reducing human error. If a provider handles payroll data for employees in the European Union (EU), they have to meet General Data Protection Regulation (GDPR) standards. Your provider should also have a data processing agreement (DPA), which outlines how the parties will process and store your data in compliance with the GDPR. This includes appropriate security policies, encryption, physical data protection measures, and risk assessments.

Tips For A Smooth Transition To Payroll Outsourcing Services

Gusto is designed with dynamic startups and small businesses in mind, and it specifically targets the solutions these types of companies need that weren’t previously available on other platforms. OnPay caters to small businesses, including startups, entrepreneurs, local shops, nonprofits, religious organizations and farm owners. Robie Ann Ferrer is payroll and HR expert at Fit Small Business, focusing on software. Prior to becoming a writer, she worked as an HR specialist at several multinational companies. National bookkeeping firms are best for companies that operate in multiple states. A local provider may only have the expertise for the local area, but a national firm should have resources for every state.

As with all things in the business world, it’s a good idea to have a budget before committing. The great news is that full-service payroll outsourcing doesn’t have to be expensive. Chances are, that’s a fraction of the cost of the time you might spend on payroll if you’re doing it yourself. Sometimes, the consequences of a payroll error are more severe than having an employee complain about a portion of money missing from their paycheck.

Bookkeepers can be more attentive when they know they’ll be seeing their clients face-to-face, so it may also encourage better service. Local bookkeepers can cost much less than hiring a full-time employee to manage your small business payroll, which is what can make it a great option for many small business owners. A local bookkeeper can cost anywhere between $25 and $75 an hour. Of course, prices vary by location and experience—for example, a CPA-licensed accountant will likely charge more than a bookkeeper without a degree.

Paychex Flex

If you don’t, make sure to hire a reliable tax professional to handle this process for you. The best payroll services offer core capabilities, ample software integrations and other key features that may or may not match your company’s current size and payroll needs. Deluxe offers services that fit businesses of any size, from entrepreneurs at launch to large enterprises. This platform is particularly useful if your business needs branding, formation and marketing support along with payroll services. Justworks is a professional employer organization (PEO) that appeals to remote teams. The company engages yours in a co-employment relationship—i.e., it’s an employer of record for your employees—so it can handle HR and payroll on your behalf.

Should I outsource payroll to a vendor?

For instance, QuickBooks has payroll services, which is an add-on to any Quickbooks plan. On top of that, you pay at least $6-$10 per worker respectively on the plan you choose. Payroll is the process of more than just giving your workers their wages on time. The process is much more complicated and includes tracking worker time, accounting for worker benefits, and setting up direct deposit and other automations. Technically, a manual payroll is done by hand with calculations performed on paper. With the use of computers, most people consider manual payroll as any payroll you process without the help of a payroll processing provider.

When Payroll Outsourcing Services Make Sense

You can add on benefits administration for an extra fee and let employees manage and enroll in benefits through the self-service portal, as well. Paychex Flex is made specifically for small businesses that need a quick and simple payroll system. It’s stripped down for businesses that just need easy payroll, with flexibility to add on services as you grow. A company’s core business functions—whatever it does to generate revenue—are understandably its main priority. Allowing a third party to direct company funds and manage highly sensitive information may once have been unthinkable.

How To Do Payroll in 8 Steps

Similar to a PEO (but without the co-employer relationship) it may also offer benefits administration and HR services. A payroll software or service can help you save time, reduce errors, boost security and stay compliant. There are a few signs it may be time to think about outsourcing your payroll solution.

You’ll also need to make sure that you have an employer identification number (EIN). The IRS issues the primary EIN and you can apply online for free. You will also most likely need a state tax number from the state’s tax assessor. With many services you will pay a monthly fee plus a per employee fee. There are several ways to outsource payroll, each with its own pros and cons.

To further evaluate your payroll needs, answer these ten questions about your business and its payroll system. If payroll isn’t automated, you have to run it manually on schedule a couple of days before payday, entering worker pay amounts and scheduling paydays. Based on our market research and the categories listed above, we also ranked additional criteria from customer reviews such as ease of use, any stand-out features, popularity and value for the price. We researched reviews from real users to gauge their opinion of each platform.

Once you’ve selected a payroll provider, you can begin the real onboarding process. Clarify the degree and depth of service you need, go through roles and responsibilities, and finalize payment terms. Now is the time to start cutting checks or making direct deposits. Deduct all the tax withholdings and deductions from the gross pay. This leaves you with the net pay, which is the amount that the check should be written for.

Keeping up with compliance laws in one region requires a lot of time and expertise. We found that while the majority of payroll services offer an employee portal, very automated bookkeeping with wave payments few offer a well-rounded ledger report. Many providers rely on third-party integrations to handle this aspect of payroll, which we factored into our rankings.