Where Should You House Payroll for Your Small Business?

As the data show, 40 percent of SMBs outsource payroll. For T. Rod Rodriguez, the owner of Gamajoto.com, a light manufacturing and distribution business, the choice between in-house and outsourced solutions came down to what is most efficient and cost-effective for the size of his operation. “For a small business of around 10 people,” Rodriguez says, “I have found that the cost of paying an outside agency to manage payroll, tax liabilities, documentation, and process the physical checks is less expensive than having an internal dedicated person.”

In addition to saving time, there are compliance and accuracy issues to consider. Keeping up with changes to tax codes can be a burden for many small businesses, and as a result payroll mistakes are commonplace. When those mistakes occur, business owners might have to seek financial or legal restitution, which—to some—may make the more expensive price of outsourced payroll services worth the somewhat heftier initial price tag.

However, despite the time involved and the additional responsibility of staying in compliance with changing tax codes, there are definite upsides to keeping payroll in-house. Advancements in payroll software have vastly improved the ability of SMBs to cut checks themselves, and with that ability come several benefits.

You have instant access to your data. If you have a question about payroll, you don’t have to go through an account representative. Instead, you can quickly and easily find answers to your questions on your own time. Also, in-house payroll is usually cheaper. There are plenty of low-cost solutions, and the field is expanding. Finally, it’s important to consider that you may be doing most of the work yourself when you outsource payroll. You’ll still have to have someone on staff compile and enter the data—often through an online interface. But if you’re already compiling the data, why not process it yourself and save some money?

In the end, there’s no easy answer. You’ll have to take into consideration several factors: the number of employees and locations you have, the benefits you offer, and how you handle accounting. You’ll then need to decide whether you want to spend your time (or pay someone else to spend their time) cutting paychecks when you could be focusing on your business’s core competencies instead.