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Small Business Payroll 101: What Are The Costs Associated With Small Business Payroll?

Payroll takes up a significant portion of a company’s revenue, but in addition to the money paid to employees for their work, there are other costs associated with payroll as well.

Some of the costs associated with payroll include:
  • Printing checks for employees. Since payroll checks include Year to Date pay information, they must be special business checks.
  • Direct deposit fees and other banking costs.
  • Employer portion of the following: Social Security Tax, Medicare Tax, state unemployment, federal unemployment, worker’s compensation insurance, paid holidays, sick days, contributions toward 401K, retirement, etc.
  • Time spent by a business owner or accountant to calculate gross and net incomes for each employee.
  • If your company uses an outside service to process payroll, they may be charged based on the number of checks cut, plus a flat fee for each time payroll is processed. The more often you pay your employees, the higher your processing fees are.

Many small business owners find that as their company grows, their time becomes more precious, and they can actually save money by outsourcing payroll services.

On average, businesses are overpaying employees by about 4 percent because of differences between the employee’s time and an accurate time record. Hiring an expert accountant to handle payroll can often reduce these discrepancies.

Another quick way to determine if outsourcing payroll would save your business money is to look through your small business bookkeeping and figure out how many hours your employees are devoting to payroll-related activities. Then, calculate how much you’re spending and compare the amount to the plans offered by several payroll-services providers.

Doing payroll yourself can take a lot of time and focus from the money-making aspects of your business. Payroll may not directly increase sales, but done incorrectly, it can put your business in a world of hurt. To be in accordance with the laws and legal requirements of payroll takes a considerable amount of time and detail. Outsourcing payroll will help you save time and allow you to spend more money on the profitable parts of your business.


Visit more posts in our Payroll 101 series:

What is Payroll?

The 1099-Misc Explained

Setting Your Own Salary as a Business Owner

The W-2 Explained

How Often Should You Pay Employees?

5 of the Best Benefits to Offer Employees

The Power of the Employee Pay Stub

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