Many entrepreneurs spend months or even years dreaming about the day that they’re able to grow their business successfully enough to add staff.
But once that threshold is crossed, some important decisions are waiting. One of the most important is figuring out the systems and best practices needed to manage employee payroll.
Stephanie Elsen has more than 20 years of experience in working with small business, with 12 of those years at Red Wing Software, focusing on accounting and payroll. She loves to help businesses streamline their processes to make their operation run more smoothly. Stephanie is the marketing manager at Red Wing Software, a company that sells and distributes accounting and payroll software to companies across the United States. I connected with her recently to get her insights on what small business owners should be thinking about when selecting their payroll solution.
What are the key questions small businesses need to answer when they are looking to add a payroll system?
While the size and scope of a new business varies greatly, most growing businesses at some point add employees, and this leads to the need for a payroll system. While payroll is not exactly the most fun aspect of running a business, it’s a very important one. That’s why it’s imperative to find a payroll system that works with the way you do business.
Not only do employees expect to be paid accurately and on time, they also expect things like mandatory and voluntary deductions to be calculated and paid accurately. Do you pay commissions or pay via piece rate? Are wage garnishments needed for some employees? Are employees being paid different rates for different jobs, perhaps switching between several jobs on the same day? Do you have a complex way of calculating employee 401K? These are the aspects of payroll that start to become complex. For entrepreneurs who are just starting out, such complex needs may not have come into play yet, and therefore a basic payroll system or service can likely handle the payroll needs. Using either a basic, off-the-shelf payroll program, whether online or locally installed, can typically accommodate such needs. Most payroll services can also handle those needs. It’s when the business starts to grow that a more robust payroll system becomes a necessity, and the search for a new payroll system begins.
What are the main requirements for small businesses in regard to payroll tax reporting and remittance?
The state and federal government expect to receive payment on time. Again, this is usually quite simple when a business is starting out. Things become more complicated with growth. Do you have employees in multiple states? Do you have more than one company/EIN number? Does your state require you to make tax payments electronically? Does your state or county have complex tax calculations? This is where calculating and paying payroll taxes becomes harder to manage, and where basic payroll systems and services start to fail.
What are the most important factors to consider when deciding between payroll software and a payroll service?
One of the big payroll decisions companies face is definitely the choice between using a payroll service or processing payroll internally, using either an online or locally installed payroll program. Most companies do have a preference, but there are some important things to consider when deciding between the two.
- Payroll staff. Is there a person or team at your company who understands payroll, and the importance of making payroll tax payments on time? If not, are you willing to hire someone who does understand it? If not, then using a payroll service may be the right choice. One of the main benefits of using a payroll service is that most payroll services take on the responsibility of making tax payments. Using a payroll service can be quite a bit more expensive, though not always. It depends on the service and also a host of other factors.
- Information Technology (“IT”). Traditionally, businesses have been concerned about the IT needs of installing a software system locally. This has become less of an issue, especially with a single-user setup. Modern payroll programs contain built-in tools for things like data backup, software updates and maintenance. As far as implementation - it is so much easier these days, with the help of a software support team either via phone or web connection. That as well as training and ongoing support is so accessible these days. Having said that, more complex, networked systems do require some IT help. In the case of a multiple user, complex setup, a company would likely need IT help regardless of the payroll needs anyway.
- Budget. As mentioned above, a payroll service can be more costly, but that is not always the case. It’s important to talk to vendors and understand the cost difference between the payroll programs or services that will work for you, before deciding on whether to go with one or the other. Factors that typically increase the cost of a payroll service or payroll software are the number of companies, payroll system users, employees, and pay dates.
As an entrepreneur, you wear many hats. Finding and using a payroll system that is right for your business can greatly reduce the burden associated with payroll processing and tax filing.
CenterPoint Payroll works for businesses that are outgrowing their basic payroll software or payroll service. CenterPoint can be installed locally or used in the cloud, and can handle the complex needs of a growing business. Learn more about CenterPoint Payroll software here: Payroll Software for Growing Businesses.