Outsourcing Payroll, HR May Save Time and Hassle

One aspect of running a business that can devour management’s time is payroll. Performing the mundane tasks of checking all employees’ hours worked, vacation time and sick leave — as well as withholding the correct amount for taxes — requires several hours of manpower. Of course, many companies choose to hire in-house staff to manage human resources and accounting tasks, but even these employees can become inundated with busy work, especially if a company has a hefty number of workers.

When efficiency isn’t an issue, sometimes available benefits are. Because businesses want to attract high-quality employees, they need to offer competitive insurance packages, retirement savings plans and other benefits — some of which aren’t feasible for small companies working on their own.

Tax Relief

A viable solution for many small businesses is to outsource their payroll and HR operations, a decision that can significantly affect the way an operation runs.

Carwash operator Bill Sorum, who owns the Beaverton Detail Center and Hand Wash in Beaverton, Ore., has outsourced his payroll duties and workers’ compensation management for as long as the operation has existed. His sister and her husband, who own Beaverton Car Wash, started outsourcing about the same time. “I had used QuickBooks [software] at a previous detail center I owned when I was younger and had more time to dedicate to it,” Sorum says. “At that point in my life, I was spending all day and night at work. It was something I loved and was in the position to do. Now, I just don’t have the time or the desire to take on the payroll and handle the taxes.”

Bob Curran, president and CEO of Kennett Square, Pa.-based Employer Services Online, says that many of his clients, including carwashes, choose to outsource payroll because they discover that state taxes can be difficult to keep track of. Since the carwash businesses Curran works with are located in Maryland — part of the Washington D.C. metro area — a carwash may have employees who reside in Maryland, the District of Columbia and Virginia, all of which have different payroll tax laws.

Similarly, clients must deal with municipal payroll taxes, which can be a nightmare since employees will inevitably reside in different cities and towns.

Curran often hears his clients say, “We can’t keep up with the changes. That’s three states to keep up with.” Compounding the problem is that payroll taxes are often due on different days and times between different states. The same is true for unemployment taxes.

“Basically, what you’re outsourcing is keeping you in compliance,” he says, adding that the IRS requires quarterly reports from businesses, as do various states, which can be tough to keep track of. Other notable reporting stressors come from federal year-end reports and W-2 forms. “We prepare all those and file them on our clients’ behalf,” notes Curran.

A giant in the payroll and HR outsourcing industry is Rochester, N.Y.-based Paychex Inc., whose logo is emblazoned on the pay stubs of millions of workers across the nation. The wheelhouse of Paychex’s client base is comprised of small businesses, with the average number of employees per client totaling just 17.

In fact, Walter Turek, the company’s senior vice president of sales and marketing, indicates that more than 80 percent of Paychex’s clients have less than 19 employees, and only 6 percent have more than 50.

Turek describes the outsourcing process in three steps. First, the client, such as a carwash operator, would either use the Internet to enter employee hours worked or call them in to a designated payroll representative at Paychex. The Paychex representative then does all the necessary calculations, including taxes, and finally, Paychex delivers the checks and reports to the employer. Clients can select from several delivery methods, including mail, courier, or self pickup at a local office branch.

“Essentially, our clients supply us with the data, and we do the rest,” Turek says.

Similarly, the model for Employer Services Online involves a little bit of participation from clients but not enough to require much time or labor cost. By accessing Web-based software, all a staffer has to do is minimal data entry.

“Someone loads in the [employee] hours onto the computer, and then they’re done,” notes Curran. “Two hours later, payroll is all done. All the reports are back to the [employer]. If they want checks, they’ll get them the next day.”

As far as providing employee benefits, Employee Services Online is an intermediary that makes sure a relationship between an operator and insurance broker stays intact. “If you want to, we can partner with a benefits