Topic Outsourcing HR / PEO,

The Hidden Opportunity Costs of Doing Your Own Payroll

The Hidden Opportunity Costs of Doing Your Own Payroll

In the short term, doing payroll yourself may seem to save money. However, it may lead to significant opportunity costs that can pile up in the long run. An opportunity cost includes the money or benefits your business may lose by taking on those tasks for yourself. When you understand the opportunity cost of doing payroll yourself, you can better calculate whether you want to handle processing payroll in-house or outsource payroll to a comprehensive HR solution such as a professional employer organization (PEO).  

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3 Opportunity Costs of DIY Payroll 

Consider these essential opportunity costs of doing your own payroll and how they can impact your business.  

 1. Time Investment

Payroll tasks can eat up a lot of time for your business. Not only do you have to ensure that every employee is entered correctly into the system, but you need to ensure that every employee’s information is handled correctly, including withholding taxes. Any error in the system can further slow down your business day.   

If you’re handling payroll processing in-house, you’re losing time that could be spent focusing on strategic and revenue-generating activities. Early on, many small business owners feel they must take on everything independently, including managing payroll. Turning that over to someone else, on the other hand, means they can focus on only the tasks they can do. By outsourcing payroll, you may notice significant efficiency gains, including increased revenue for your business.  

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2. Compliance Risks 

There are a lot of complex tax laws, regulations, and reporting requirements. Some regulations change annually as the IRS offers key tax breaks or institutes new taxes. Tax laws and regulations may also vary by state. It can be a costly mistake if you aren’t in compliance with all of those laws and regulations. Not only can you end up responsible for repaying any amount you failed to withhold from employees’ checks in the first place, but you may also end up on the hook for interest and penalties.  

In many cases, that can significantly cut into your profits or leave you without the income you anticipated from the year. Furthermore, falling out of compliance with employee withholding or payments, including payments for insurance or any other benefits that should come out of the employee’s check, can decrease employee confidence in your organization. 

Outsourcing payroll, however, ensures that you have payroll experts handling payroll every time. They keep up with the latest tax and payroll regulations changes, ensure that your business is compliant, and help you prevent missing out on critical details. As a result, your business can avoid the costly fees that often come from being out of compliance. Compliance can also help increase employee confidence in your business and your ability to protect them.

3. Software and Infrastructure Costs 

Keeping up with the software and infrastructure necessary to manage your payroll can prove unexpectedly expensive. Not only do you have the up-front cost of purchasing that software, but you may also have to keep up with the latest updates. Eventually, many software manufacturers will stop supporting previous software versions, meaning you will have to purchase new updates or new software. Furthermore, you may have to pay for ongoing support.  

You may also need to purchase hardware and other infrastructure necessary to handle payroll operations. Since payroll is an essential function, you may face critical business challenges, including dissatisfied employees, if you fail to invest in that infrastructure.  

PEOs, on the other hand, provide that complete infrastructure as part of their function. That means you will not have to invest in that software or the hardware infrastructure yourself, nor do you have to keep up with updates or pay for someone to support you. 

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Increase Efficiency and Profitability with a PEO  

Outsourcing payroll can go a long way toward improving efficiency across your organization. By utilizing a PEO for your payroll needs, you may see a significant decrease in overall costs, an increase in efficiency, and more. PEOs can increase profitability in several important ways.  

By working with a PEO, you can see a significant increase in your overall engagement and profitability for your business. Not only can a PEO help handle payroll, but they can also handle many of the other administrative tasks on your plate, freeing you up to focus on the essential functions of your business. 

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Please note that the information presented above is not intended to be specific, technical, or professional advice. Our aim is to educate and provide insight into relevant topics.