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Contract Payroll Functions

contract out the payroll function

The reasons to contract payroll functions far outweigh the reasons not to. Even for smaller businesses.

Choosing which functions at your company to contract out and which to keep in-house can be tricky. Not so with payroll.

Low Reward, High Risk

Small business owners often keep payroll in-house. However, even small businesses are better off if they contract payroll. It’s a matter of risk-to-reward.

The fact is, no one gets an award for getting payroll right. Employees expect their paychecks to be accurate and on time, every time.

But employees aren’t the only ones. The Internal Revenue Service expects payroll tax filings to be accurate and on time, every time.

Given that high expectation, employers are in an uncomfortable position. They have to execute perfectly or risk disappointing their employees and getting into trouble with the IRS.

Contract Payroll to Lessen Risk

It’s not just about the numbers. Yes, you need to get the numbers correct, but it’s more than that.

Getting payroll right requires a level of expertise that may go beyond what you have available at your company.

Get the numbers wrong, and you’ll hear it from your employees. Do your payroll late, and you’ll hear from your employees again.

However, you may also hear from the IRS about late or incorrect filings. Your company may be liable to penalties.

The Internal Revenue Service has reported that one out of every three employers has been charged for a payroll mistake, with total penalties reaching into the billions of dollars. And given the ever-changing nature of tax regulations, it’s easy to make an error that can grossly affect your bottom line.

…Even the most meticulous and experienced professionals find that payroll can be a headache. Slap on a stiff penalty for a tax filing omission, and now we’re talking a full-blown financially induced migraine.

For many businesses, payroll services offer an attractive and valuable alternative to in-house processing. Chosen correctly, they provide a less expensive, simpler means of paying your employees, filing your taxes, and performing a host of other duties these companies’ sales reps can’t wait to tell you about.


Contract Payroll to Stay Compliant

Compliance with regulations is also a big part of the payroll function. Whoever is doing your payroll needs to stay up-to-date on all the applicable local, state and federal regulations.

Businesses have to comply with a wide range of laws when it comes to employees — from federal, to state and local. It takes considerable time and attention to detail to deal with them.

Employers have to deal with almost 10,000 federal, state and local taxing jurisdictions across the United States. While most small businesses won’t have to comply with each of those jurisdictions, still it points to the complexity of the laws. And every year hundreds of new laws and regulations are enacted.

For small businesses on the larger side (50 full-time employees and up), the Affordable Care Act alone imposes considerable reporting and compliance requirements.


It’s analogous to accounting. Accounting software enables small business owners to do their own bookkeeping and accounting.

However, that software doesn’t educate employers on the accounting principles behind the numbers and processes. Without that knowledge, business owners leave themselves open to mistakes. It’s better to trust accounting to a professional. The same goes for payroll.

Contract Payroll for a Strategic Advantage

Small business owners, in particular, often say that administrative tasks take them away from their core business.

In the case of payroll, a business owner is spending time doing payroll that they could be spending working on business strategy.

If a problem comes up (i.e., a tax law violation), that means more time. Whoever is doing a company’s payroll now has to comb through records and address the problem.

When you contract payroll functions (and other administrative functions), you free up time. You can then use that time for strategic planning to make your company more successful.

—Jewell Christensen, Avitus Group Payroll Manager

Contract Payroll Functions

Payroll is a thankless job. It’s high-risk and low reward. On top of that, it’s also time-consuming.

If you contract out payroll functions, you ensure payroll efficiency, accuracy and timeliness. You also free yourself up to focus on business strategy to make your business more successful.


By Charlie Smith

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