Paychecks aren't as straightforward as people often assume. Employees' weekly or biweekly pay is adjusted to reflect a number of deductions, including contributions to a 401k, various allowances and reimbursements, commuter benefits and, perhaps greatest of all, insurance like vision and dental.
These are never stagnant, either, and can change depending upon life events like getting married or having a baby. Given that dynamic, it's important to have the right tools and systems to properly manage employee paychecks.
However, this process is especially nuanced, and requires a bit more depth.
The Cost of Payroll
Among the many benefits of being a larger corporation or business entity is a dedicated staff of people to manage payroll and similar tasks. Yet, even with people whose sole job is to handle deductions and address concerns, there is a cost tied to effective payroll management.
In 2013, CNN examined the true cost of paying employees at an average corporation. What that investigative team found was while an employee's paycheck may only be $70,000, the total cost for an organization can be upwards of $88,000. Where does the added cost come from? Benefits and taxes. For instance, at a salary of $70,000, social security costs a company $4,340, or 6.2 percent. Businesses are also responsible for 1.45 percent of Medicare ($1,015) and 2.8 percent of State unemployment insurance ($478).
Now, all of those taxes and other fees aren't just expensive, but require the efforts of a full-time staff to manage. According to the Houston Chronicle, HR people spend around 18 percent of their time handling payroll for 50 employees. So, that means it requires one payroll specialist working a 40-hour week to handle payroll for 250 employees, and anything more requires additional hires.
Not every company has the same needs or as many employees to handle, and they need some level of flexibility. That's one of the main benefits for organizations that can handle some of these costs to keep payroll in-house. No two organizations have the same needs, and they need a system that can handle their unique needs and any costs that might accrue. With flexibility comes a certain level of control, which can be essential for finding errors or continually streamlining the payroll process.
Better overall control has other benefits as well, including a greater scope of security and the ability to merge with other, similarly customized systems. In-house payroll has its share of costs, but many larger companies can afford to absorb these for the many benefits.
A Small-Business Perspective
Not all companies are as fortunate, especially small to midsize business (SMB) outfits with a staff under 30 employees. Most of these groups simply don't have the funding nor the manpower to handle payroll in-house. Even if they did, some experts argue that, given their reduced workforce, there isn't a need for internal payroll services. That's why so many small businesses end up outsourcing payroll; in fact, nearly 44 percent of SMBs trust this task to an outside vendor, as Accounting Today pointed out.
There are several great reasons why companies opt to outsource beyond the issues of cost. These include greater security measures and data protection, better compliance with various government regulations and the general experience and insight of seasoned professionals. However, business leaders need to be cognizant of which vendor they turn to for payroll. Some of these groups can be costly, up to $2 per check on top of other base fees, according to Entrepreneur. Companies also need to have a partner they can rely on, with regular communication and engaging customer service.
It's also about having the right expertise, and a vendor who understands what it takes to handle payrolls in a way that address a businesses' needs and employees' major concerns. That holistic approach, with every facet of paychecks weighed, makes for successful vendor-client interactions.
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