Payroll Services

Payroll compliance is complex, especially for small and midsize businesses (SMBs). There are many things to consider:

• Determine net pay by factoring in employee leave and time worked
• Calculate state and federal taxes to remain in compliance
• Ensure taxes are filed on time—the failure of which can mean facing Internal Revenue Service (IRS) fines

According to Inc.com, about 40% of SMBs incur IRS penalties, costing them an average of $850 per year. A payroll service can help you manage payroll compliance more efficiently, thereby helping you avoid these fines. The service also saves time spent with payroll processing and ensures that all your employees receive their paycheck on time.

However, because of the sheer number of payroll providers, finding the right service for your business can be confusing. That's why we've created this guide with all the necessary information you'll need for selecting the best payroll service for your business.

In this guide, we'll cover:

• What is a payroll service?
• Common offerings of payroll services
• What type of client are you?
• Benefits and potential issues
• Market trends to understand

What is a payroll service?

Payroll services allow businesses to outsource their payroll management processes. Such services help businesses track employee time and attendance, calculate salaries, compute taxes, and remit salaries to employee bank accounts. Some services also perform tax filing on behalf of your business.

Common offerings of payroll service

The first step towards selecting the right payroll service for your business is to understand what is offered with this type of service. According to our research, the following are the features you should be aware of:

What type of client are you?

The next step is to understand the types of clients that use payroll services. This knowledge will help you select a product based on your business requirements.

The following are different types of clients of which to be aware:

• Integrated HR solution buyers. A lot of payroll services are offered with HR software. Using services from your HR software vendor allows you to manage HR functions (such as recruiting, onboarding, and performance management) along with the payroll process, all from a single system. If you are a small business that needs HR software that also offers payroll services, there are many options to look at in the market.
• Standalone payroll service clients. Standalone payroll services help you automate the payroll function of your business without any additional functionality. Small businesses that have complex payroll compliance needs or are fine with keeping payroll and HR management process separate can invest in these services.

Benefits and potential issues

After you've learned about the common features, the next step is to understand the advantages of using a payroll service. Knowledge of benefits will help you assess the usefulness of a payroll service for your business, which will help you build a strong case for the investment.

Here are the key benefits of payroll services:

• Faster payroll processing. Since payroll services manage payroll calculations and tax deductions, they are able to remit salaries faster. According to our research, most payroll services can process employee salaries in less than four days.

• Easier compliance tracking. Payroll service providers keep a close watch on tax, payroll, and labor compliance. They ensure that the payroll taxes are accurately calculated, overtime pay is factored into payroll calculations, and employee pay and benefits are in compliance with government regulations.

• Increased business profits. Using a payroll service helps you avoid possible costly IRS fines, thereby contributing to your business profits. Outsourcing the payroll process can also help you minimize or completely eliminate your payroll staff, resulting in reduced costs.

However, despite these benefits, there are some potential issues that you need to factor in while selecting a payroll service:

• Data security concerns. With the use of any third-party service, there is a risk of data security. In fact, Helen Poitevin, VP Analyst HCM at Gartner, points out third-party services as one of the biggest threats surrounding employee data security. Businesses need to thoroughly examine data security practices followed by the payroll service provider before making any final decisions.
• Loss of control. When you outsource your payroll process to a third-party service provider, you risk losing visibility and control of the payroll process. You have to rely on what the service provider tells you. For this reason, thoroughly assess the payroll management practices followed by the payroll service provider before you make the investment decision.

Market trends to understand

The landscape of payroll services is changing fast. As a result, to ensure long-term success with your payroll service provider, you need to select services that are incorporating the recent market trends into their offerings.

Here are the key market trends that you should know about for payroll services:

• Adoption of employee self-service portals are on the rise. Employee portals allow employees to view their salary components and benefits, as well as have access to their pay slips. As businesses look for ways to automate their payroll function completely, they are more open to outsourcing employee self-service to these third-party services. We expect this feature to become a core payroll service offering in the near future.
• Global payroll support to become standard payroll services function. As more companies expand their presence into multiple countries, an increasing number of payroll services are adding global payroll support into their offering. In addition to the features of one-country payroll services, a global payroll service also includes multicurrency and region specific compliance management.