Not all payroll outsource solutions are the same.

We recently had a really bad run-in with an outsourced payroll provider for a client. Based on that experience, we wanted to share some lessons learned to make sure you are prepared, and have the information you need to choose the right payroll provider for your business.

We will always support outsourcing payroll – it’s cheaper and it’s easier than taking it on yourself.  However, you have to choose the right provider. So when you’re ready to consider your options, hopefully this list of questions can help you decide. No matter what option you choose, it’s critical that the people who work closest to the financial statements and payroll are involved in the vendor selection.

Here are some questions that your organization should ask an outsourced payroll provider before moving forward:  

Are you bonded and insured?  Prove it. 

To protect that your money is remitted to the tax authorities by the payroll provider, you want to make sure your payroll provider has a bond. If the money is embezzled, it may take you years to find out, and you will be personally responsible to pay those back taxes.

Do you have the responsibility for tax filings, and resolving discrepancies or errors in tax filings? Prove it, can I talk to a client?

This is where the real value can be for your company. Outsourced payroll providers will file taxes for you, but when there is a problem, who is doing the clean up? You need to be clear on roles and responsibilities. If this is where the value is, you need to make sure you are getting your full value. 

How quickly can you serve my company when I start a new business, and/or hire an employee in a new state? 

For example, if you finally found a software developer that meets your needs. But she’s going to work out of her house in Kentucky. Now you need to register for withholding and unemployment tax in Kentucky. Is the payroll company ready to do process that payroll?  Some companies say that you cannot pay that person until the registration process is complete and registration numbers are in hand. What is realistic timing for the registration? Your new hire is going to expect her first paycheck within 14 days, is that going to be possible?  

Can I preview my payroll before it’s officially submitted?  Can I see a sample of that report?

As accountants we like to check our work before we officially release the payroll checks. When it comes to people’s payroll, we insist on the double check. So before you hit submit, we recommend you see a full report of payroll and its details—employee by employee, deduction details, tax jurisdictions, total cash out of pocket, etc.

How should I communicate with your Customer Support Department? What can I expect from them? What is the turnaround time for a response?

This is the second piece of value from payroll providers. There’s one payroll company I work with that is more expensive than the others, but their customer support is incredibly responsive and knowledgeable. Some are only allowed to say “you must consult your tax advisor.” There are others that you are only able to communicate with by email and the turnaround time is 12-36 hours. The value of customer support can vary if you the CEO are processing payroll, or if you have a bookkeeper/accountant processing it for you. If you are doing it on your own, you’ll really appreciate an amazing customer support team and they will be worth the additional cost.

When do you pull my funds out of my bank account? 

Generally, they pull your employee pay and tax money out when you process payroll. But this processing time can range from 24 hours to four days. We all understand that payroll companies make money on the float of your money, but you must consider whether you can afford to fund your payroll as many as four days in advance.

We hope these questions will help you understand more of the risks and value involved in outsourcing payroll, and help get valuable information when you are evaluating your options. But remember, we still support you doing it! Call or email us if we can help you decide, or share our experiences.