It’s payday! That glorious day of the week that your employees have marked on their calendars, be it so that they can pay the bills and rent or treat their families to a nice meal with some extra money in hand.

Yet, it may not be a profitable day for a business owner, though they may not realize it. Many small to mid-sized businesses pay employees directly using a manual payroll system. The belief being that it is more cost-efficient to handle the payroll process within rather than employ an outside vendor. Though it seems like an obvious conclusion, employers would be wise to research the benefits of a payroll service. It just might translate to a profitable return on investment.

There are many benefits to outsourcing payroll.  Modern payroll services use automation to significantly, and sometimes completely, eliminate the possibility of literally costly errors. Your own system may be working without a glitch, but you still cannot discount the possibility of human error.  According to an American Payroll Association study, traditional payroll systems can result in error rates between 1% and 8%, while automated payroll services can drastically reduce that rate to near zero.

Paying employees directly is a time-consuming task. You’re not simply multiplying your staff’s hourly wage by time worked. There are taxes, insurance, perhaps overtime and holiday pay, plus other deductions to consider. You also need to have a constant eye on ever-changing state and federal tax laws.

Compliance here is essential. If you pay employees directly, you may be so busy running your business that you forget when an increased minimum wage or overtime rule kicks in. That could lead to considerable back pay, which in turn can throw a very tight wrench into your budget. 

Automated systems are often designed to conform with current rules, further reducing the risk of costly miscalculations related to payroll deductions. An outside firm would likely have staff who keep a continuous eye on tax legislation.

Repeated payroll slipups can turn some satisfied employees into fuming staffers. If paychecks are late, or someone is underpaid, they may incur a late fee on bills that they would have paid promptly with a timely paycheck. Paying late, especially on a credit card bill, could impact their credit score, introducing a whole new host of financial problems for your now disgruntled employee.

Consider as well that payroll malfunctions result in using valuable time and resources to make the fix. That could at best entail paying staff overtime, or worse, hiring an outside firm to correct the issue. Plus, if your business grows over time, your payroll system could likely become more complex. In addition to simplifying the process, payroll services have a huge leg up in detecting nightmarish fraud and data breaches infiltrating your program.

Using direct payroll for your business rather than a payroll service may appear a clear choice that may not be so logical in the long run. It does not hurt, and may strengthen your business, to research the options.