Whether you’re Google or a start-up operating out of your parent’s garage, you’re required to process payroll, calculate taxes and maintain records in a reliable way. How do most small and medium-sized businesses process payroll? Well, typically there are 3 options:
- Hire a professional employer organization (PEO)
- Manage payroll, yourself
- Partner with an HR & payroll provider
Deciding which option is best for your organization can be overwhelming, especially if you’re looking to cut costs and mitigate risk.
“Isn’t Payroll Easy? It’s Just Adding Numbers and Writing Checks, Right?”
WRONG. Processing and running payroll is a composition of challenging, high-stakes tasks. In fact, payroll teams have multiple responsibilities, including:
- Processing payroll
- Filing tax and voluntary deduction reports
- Processing levies and garnishments
- Computing wage and overtime payments
- Calculating state, federal and employment taxes
- Maintaining compliance
- Entering new hires into the payroll system
- Recording and calculating payroll deductions
- Processing requests for paycheck advances
Doesn’t sound like sunshine and rainbows, does it? Managing payroll can be a serious burden, especially when you’d rather be focused on more strategic initiatives like recruiting, benefits and people management.
So, which option is best for you and your organization? Let’s do the math.
1. Hiring a PEO
Working with a PEO can be a great option if you want to be completely hands-off payroll. But there are some concerns you should address. For one, this is the most expensive option available to you. Also, when working with a PEO they become your co-employer and typically require you to sign a long-term contract.
How much is it going to cost? Well… like all questions about price, it can vary.
PEOs are typically paid by charging you a percentage of your total payroll, usually ranging between 2% and 10%. What does this mean for you? Here’s an example: Let’s say you employ 20 people and you pay each of them an annual salary of $35,000. If a PEO charges you the industry average of 6% of your gross payroll, you will receive an annual bill of $42,000. The larger your organization grows, the more you pay.
2. Managing Payroll, Yourself
Many small and medium-sized businesses think manual, inhouse payroll is a cost saver. IT’S NOT. In addition to the time burden of manual payroll, there are associated costs and risks that most businesses don’t consider. Hard to believe? Well, according to the IRS, 40% of medium and small-sized businesses are fined for failing to deposit withholdings, miscalculating taxes or submitting incorrect filings. Unfortunately, penalties and fines can be a death sentence for smaller organizations.
Other costs include:
* Estimated costs for 20 employees
- Direct deposit & setup fees – $50 to $150
- Transaction fees - $31.50 per pay period
- Paper checks & printer fees - $60 per pay period
If you’re reading this article, chances are you currently manage payroll yourself and you’ve realized the time burden, associated costs and high risks aren’t the right option for you and your organization.
3. Partnering with an HR & Payroll Provider
When you partner with an HR & payroll provider you’ll notice immediate benefits. From streamlining your payroll processes and calculating taxes accurately to maintaining records and free access to a dedicated team of payroll experts, it’s the perfect balance between completely outsourcing payroll to a PEO and managing payroll yourself.
I know what you’re thinking… “Just tell me how much it’s going to cost!”.
Fine. Here we go: An HR & payroll provider usually charges a fee per employee per pay period. But these fees are minuscule compared to a PEO, cents on the dollar. With an HR & payroll provider, you can expect to pay up to 40 times less than a PEO. That’s a small price to pay for accurate and streamlined payroll, ensured compliance and peace of mind.
Unlike PEOs, there’s no long-term commitment. And, the larger your organization grows the less you pay per employee.
Paycor’s Perfected Payroll
We’ve spent nearly 30 years perfecting payroll. Our solution is the easiest and most powerful solution for small to medium-sized businesses on the market.
- Our dedicated tax experts assist you with payroll tax compliance, workers’ comp and federal and state laws and regulations
- Paycor eliminates administrative processes by empowering employees though self-service access
- Maintain accurate employee pay records
- Improve your payroll service with general ledger integration and helpful HR resources like employee policies, job descriptions and custom templates
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