Payroll: In-House Or Outsource? The Hidden Costs of Payroll.
By Steve Cook, CPA, MBA | President of LASO
As a practicing CPA (Certified Public Accountant) for almost 40 years, let me just say that whether you have 1 employee or 1,000 employees, payroll is a royal pain in the rear – you know it, I know it, it just is.
Why? Because payroll laws are complex.
And if you don’t get it right, you could pay 200% to 300% of the original tax liability in penalties and interest. If you’ve ever been audited or had a tax-debt, you know that the Federal government is dead-serious about employers paying their payroll taxes.
There’s got to be a better approach…
Two Approaches to Payroll
One approach is to keep everything in-house. In our observation, most business owners say to themselves “well, we have a bookkeeper and a computer, why pay a fee to outsource payroll?”
The challenge with this approach is most bookkeepers are simply overwhelmed and under-skilled to handle ALL the ever-changing payroll and HR regulations, which result in potentially devastating tax bill or legal liability.
Even as full-time dedicated CPAs, we are constantly learning about the new payroll and HR laws, so we can help our clients save money and stay out of trouble.
But the real cost is in…
$2,000 in Hidden Costs of In-House Payroll
Most business owners grossly underestimate the “hidden” costs involved with payroll and HR administration, and make the mistake of managing HR tasks in-house.
According to “The Hidden Reality of Payroll & HR Administration Costs” research study, done by PwC:
- Cost of administering payroll, time and attendance, and related HR tasks in-house costs nearly $2,000 per employee per year (PEPY) for SMBs (small-medium sized businesses).
- 49% of the costs are “visible”, which, include: system installation and upgrades, direct labor, and outsourcing.
- While the other 51% of costs are “Hidden”, which include: indirect labor costs (preparing employee hours for payroll, distributing checks), direct non-labor costs (IT staff, consultants, and vendor fees), and systems maintenance.
So if you think you’ve saving money going in-house, please think again.
The Second Approach
The second approach is the partial outsourcing solution. According to The Fiscal Times, an estimated 85% of businesses outsource at least part of their HR functions.
To be completely honest, most of our Texas clients, usually engage us only after they have experienced tough enforcement from the IRS or Texas collections. If significant issues exist with the IRS and/or State taxing agencies, the client will typically get us in the loop. Unfortunately, putting the rabbit back in the hat is, at best, challenging – sometimes impossible.
As for employee benefits and human resource issues, those items generally remain in-house process because:
- The employer has health benefits through one of their clients or a friend
- HR issues where significant legal issues (wrongful dismissal, harassment) may reside, were typically only addressed when the disgruntled employee retains an attorney
We realized our clients could save money by bundling benefits and HR compliance with payroll…
A Third Approach
All of this brings us to a third approach: the all-inclusive answer. This approach does not appeal to every business owner because:
- “Approaches One and Two” are based on cost, not value.
- “Approach Three” is about value not cost.
I like to think of it this way… Years ago, after I went on an all-inclusive vacation, I realized I had maximized “my down time” by going to “all-inclusive” resort.
Why? Because no worrying about:
- Budging for dinners and drinks
I just let go of all that, and went “all inclusive”.
The result? I had more relaxation, more fun, and basically, the best vacation week of my life!
When I returned I could not wait to tell my friends and family. They agreed “all-inclusive” is the way to go!
So, I thought:
- Why isn’t there an “all-inclusive” company for our clients?
- Why not bundle all of our employee services?
- Why don’t we become concierge for our clients’ employees?
If we could create an acceptable program for their employees and their employee related issues, then our clients would be free to do what they do best: make money – and enjoying their life.
Benefits of the All-Inclusive Approach
The benefit to employers with the “All-Inclusive” approach is they can eliminate redundant tasks and reduce the risk of errors, while still benefiting from expert guidance and 24/7 support – give us a call anytime at (210) 405-8747, we’re here to help you.
“But wait, there’s more…”
Here’s some other advantages of outsourcing, include:
- Keeping your staff focused business activities that make you money
- Properly meeting the FLSA guidelines
- Payroll continues without interruption, regardless of employees being sick or on vacation
Sound pretty good doesn’t it?
Our team consists of CPAs, licensed life and health agents, the premier HR benefits provider and a support staff located in Texas to assist you in your employee and employee benefit needs every single day.
We take care of your people… we are the people company!
We’d love to help you make your life easier while saving you money, so tap here for a free consultation now.