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What are some signs that you need to upgrade your payroll solution?
As small businesses grow into medium-size organizations, their original payroll systems may no longer be able to support their needs. What are some signs that an organization has outgrown its payroll solution?
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3 Answers
A couple issues that entrepreneurs do not pay enough attention to are; is the person doing the work a 1099 contractor or a W-2 employee. The IRS has extensive guidelines that will be used to determine whether or not the person is an employee. Roughly, if you tell the person when to be somewhere, what to do and how to do it, it's an employee - not a contractor. In any case, all 1099 contractors must be paying their quarterly estimated tax payments if they operate as a sole proprietor.
The other issue that has much harsher consequences, failure to pay payroll taxes will result in penalties and interest - and will follow the business owner personally. If the business goes bankrupt, the owner is still personally liable for any unpaid 941 payments.
By using third party payroll solutions the business owner can outsource this vital responsibility so that it doesn't come back to become a severe problem.
What are some signs that you need to upgrade your payroll solution?
- payroll is no more processed in due time (insufficiency of the software capabilities to manage increased data : time consumer)
- payroll software is no longer providing the full coverage needed in order to meet the organization new needs (for e.g. implementation of the manpower planning and careers management agreement, management of the attendance and leave data that have increased and become more complex...)
- payroll system is no more providing the management with the KPI needed
- payroll system is not enough flexible in order to insert rapidly new branches, new collective baragaining agreements...
- increase of errors, employees' complaints
in conclusion, payroll software is no longer able to assist the company in its growth
It is hard to know how most business does their payroll. For just a local business, it is possible to do payroll without a system and by hand but I would not recommend it to any business with more than a few employees. There are too many rules to know and a business owner or bookkeeper may not know them. Also the tax filings can be confusing and if done wrong the state and federal governments are not amused and will come after the money vigoriously.
I have seen small companies use local payroll services but do not recommend them for firms that have out of state employees or need any kind of advice. In Silicon Valley, the first step firms are PayChex and ADP. They can do local and multistate payrolls and pay payroll taxes in all states. Further they can provide some additional products such as workers compensation insurance and 401K plans. ADP can grow as much as your company can and is capable of very large payroll processing.
Larger but not large firms should consider employee outsourcers such as Administaff or Trinet. Their programs are quite complete, in compliance with California law, and offer advice from people that have a clue. But there is a substantial fee for this support. However the rigidity of their programs is in fact an advantage since the compliance areas will be covered. In working with Administaff a few years ago, I was impressed with their hiring program that required drug tests and reference checks; many firms dispense with these key items.
In general, most early to mid stage firms do not focus on compliance with payroll and HR until it is too late and something bad happens. A recent client is suffering a lawsuit from a disgruntled employee that was let go. This kind of distraction is expensive and by having poor payroll and HR routines the company leaves itself open to bad things happening.
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