Employee Management

What to consider when selecting a payroll provider

Four things to think about when considering a payroll service, and one more fact if you’re still not convinced.

Published: February 11, 2013
Updated: February 19, 2017

Sooner or later nearly every business owner realizes it's time to let someone else, a specialist provider, handle the time-consuming task of processing payroll.

After all, very few business owners are comfortable keeping up with hundreds of legal and regulatory changes every year or are confident about making hundreds of tax calculations annually.

But how do you choose the right payroll provider? To help you with that decision, here are four key things to consider — and to ask potential providers about as well.

Tax liability

Tax issues are probably the number-one challenge in handling payroll yourself. Every year federal and state penalty notices, levies, and legal action not only reduce productivity, but put many small companies out of business entirely. Often the business owner was trying to do everything correctly, but was simply unaware of all the rules for calculating paychecks, timing tax payments and filing.

If you work with a CPA or accountant to do your books, this person can handle your payroll as well. But unlike a professional payroll service company, that individual is not likely to pay your penalties and interest if they make a mistake calculating or filing your employment taxes. A good professional payroll service company will even work with the tax authorities on your behalf if you ever face a payroll tax problem.

Payroll expertise

Any reputable payroll service you choose will be able to cover the basic needs, such as calculating hours and vacation time, cutting checks and mailing them to your employees. The trouble is, those might not be your needs. An experienced payroll professional will get to know your business, understand what it requires, and work with you to make sure your payroll solution is a good fit. For example, you may want to combine your online banking with online payroll processing or offer your employees a 401(k) plan.

A trusted provider

Of course, the provider you select needs to be someone you can trust. For something as critical as handling your payroll processing and tax reporting, look for an established brand with a solid history, extensive resources and experience, and a reputation for great service. The last item is particularly important since at some point you'll probably face an urgent situation: if your administrator was unexpectedly hospitalized, could your provider step in and make your filings on time?

The right features

We know that all businesses have different needs, but those of small companies are especially diverse – and are becoming more so. These days, even with just a handful of employees you might need payroll deductions for 401(k), a flexible spending account, and perhaps an HSA for your health plan, plus direct deposit. And because every minute you spend on administration keeps you away from your core business responsibilities, you want it all to work as smoothly as possible.

For example, to simplify your finances, consider working with your bank. At Wells Fargo, we offer payroll services that have some unique advantages, such as linking payroll directly to online banking for maximum convenience. If you find yourself in a situation where you need to move money very rapidly, you will appreciate having payroll services as part of your overall banking relationship.

Now, if you're still wondering whether hiring a payroll provider is worth the cost, consider that many business owners face tax penalties each year. Even if you're a very hands-on manager, working with the IRS or state agencies on payroll processing issues is one task you'll be glad to give to a professional payroll provider. When that time comes, the amount you spend on payroll processing may turn out to be the best business investment you ever made.

Get more tips on how to outsource payroll.