Why Outsource Your Payroll When You’re a Teeny, Tiny Startup?

As a startup founder, you get used to putting up with things that might drive the average person insane. You take customer calls during dinner, you spend hours with the dev team fixing bugs, and, sometimes, you even end up cleaning out the office fridge because who else is going to do it?

All this to say, being a startup founder can make you immune to the most frustrating, time-consuming, and downright dirty jobs. You could say it’s a kind of startup tunnel vision.

The problem is, sometimes you get so used to doing everything, that you don’t consider that there might be a better way. This is exactly what happens to many startup founders when it comes to payroll.

Payroll is a job that has to be done and someone has to do it. It’s not just an administrative task, but also how you compensate your team for the work that they do. However, that doesn’t mean it has to be done by the founder to ensure that employees get paid on time. In fact, outsourcing payroll could be a major time-saving hack that most startup founders haven’t even considered. To help you open your eyes, we’ve outlined why choosing to outsource your payroll could have major benefits for your startup.

What’s wrong with doing payroll in-house?

If there’s a problem, most tech founders have an app for that—except when it comes to payroll. Ironically, few tech founders know how to make technology work for them when it comes to the payroll side of their business. Instead, many attempt to do payroll in-house, which is to say that they “wing it.”

However, there are a number of drawbacks to the in-house approach. Not only are manual processes painfully time-consuming, but they’re also easy to mess up. Indeed, payroll mistakes such as wage deferral, misclassification, and not paying overtime, are particularly easy to make when you’re a startup founder running your own payroll. This could put your company at risk for fines, penalties, audits, and even legal issues. In short, DIY payroll is like playing with fire. Sooner or later, you’re bound to get burned.

Why outsource your payroll?

It’s clear that the DIY approach is mediocre at best. However, now you’re probably wondering if outsourcing your payroll is really any better. Though it may seem a little painful to pay for a service when you’re trying to get your teeny, tiny startup off the ground, the benefits that come from outsourcing your payroll far outweigh the costs. In fact, if payroll is bundled as part of your bookkeeping, you might just take care of two major administrative birds with one stone.

1. Cost

When you’re in the early stages of launching a startup, money is the top concern. When you try to run payroll in-house, you’re constantly spending money on paycheques, tax documents, software, and more. Of course, the biggest cost is the amount of time you spend running payroll each week.

If you consider what your time is worth per hour, you’ll likely find that outsourcing payroll is actually a far cheaper solution in the long run. This is especially important for startup founders, as your time is literally money.

2. Time

Any startup founder who has attempted to tackle payroll knows just how much time and attention to detail it takes. Ironically, the more successful your company is and the more you grow, the more time payroll will take up.

Outsourcing payroll obviously frees up that time, allowing you to focus on more important tasks such as refining your sales strategy or brainstorming a new marketing campaign. You didn’t build a startup just to spend hours calculating income deductions, so always keep in mind where your time is best spent.

3. Compliance

If you’re a startup founder, it’s probably safe to assume that you’re not a payroll expert. As a result, it’s only a matter of time before an error lands you in hot water with the IRS. Just a few years ago, the IRS issued 6.8 million penalties to US employers for payroll tax mistakes, totaling $4.5 billion. And fines aren’t the only thing you need to worry about. In some cases, you could also be held legally responsible for any payroll mistakes you make.

When you outsource payroll, you significantly reduce the risk of error. Payroll services are up to date on the latest rules and regulations to make sure that your business is always compliant and tax ready. Moreover, if mistakes are made, payroll services will make the necessary corrections, while also taking on the liability of any errors on their end.

4. Security

It’s no secret that DIY payroll isn’t exactly the most secure way to handle employee information—you’re basically leaving the door open to a security breach. For one, there’s a risk that employees may tamper with the records. Moreover, if you’re housing data on a server with security flaws, you could be vulnerable to data theft.

On the other hand, outsourcing payroll puts your company data in the hands of those who know how just important security is. Not only do these companies benefit from the increased security of cloud computing, but they can also trace any errors to protect your company against potential losses.

5. Employee Satisfaction

As a startup founder doing your company’s payroll, you already know how time-consuming and frustrating it can be for you. But you may not have considered how it also impacts your team. One survey found that nearly 50% of people start searching for a new job after just two payroll mistakes. In other words, payroll errors could be costing you a lot more than just money.

It seems obvious, but employees are happier when they are paid on time for the correct amount. Outsourcing payroll can ensure employees never send you angry emails about why they didn’t receive their paycheque on time.

6. Extra Goodies

Even if your payroll skills are not too shabby, there’s only so much you can offer with the limited tools at your disposal. You may think that the basics are enough, but if you can’t even offer your team direct deposit, it might be time to rethink the in-house strategy.

When you outsource payroll, you get to take advantage of value-added services that go beyond paystubs and tax calculations. Indeed, many payroll services offer tie-ins with 401(k) and Section 125 mutual fund plans, giving employees an easy way to deduct a designated amount from their paychecks. Other goodies can also include direct deposit, HR capabilities, and even bookkeeping.

7. Stress-Free

Even if you have some payroll expertise, it’s safe to say that payroll is not the most fun experience. At best, it’s an administrative annoyance, and at worst, it’s a downright nightmare.

However, when you outsource your payroll, you remove all of those worries—instantly. Payroll professionals have years of training to tackle the complexities of tax laws, regulations, and government compliance so that you don’t have to.

At the end of the day, it all comes down to what is best for the growth of your startup and it’s obvious from the above that outsourcing payroll is the smartest move you can make—even for the tiniest of startups. An even smarter move? Getting payroll and bookkeeping off your plate with OpenDigits.

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