Why Doing Your Own Payroll is a Huge Mistake
November 16th, 2022 | 5 min. read
What makes you want to do your own payroll? If your answer is along the lines of, “I want to save money,” you may see avoiding expenses as a safer option than making an investment. This is not true for every situation. While we can admit that some situations may benefit from doing payroll in-house, for many small businesses, it's a mistake.
At CSI Accounting & Payroll, we’ve spoken with thousands of small business owners over the past several decades, so we know what commonly drives people to want to do their own payroll. However, when you do your own payroll, you need to consider the following hazards:
- Difficult-to-use software
- Ongoing software fees and other expenses
- Extra time required
Whether you or one of your other employees does your payroll in-house, small businesses tend to gravitate towards payroll software to help guide the process and ensure everything is done correctly. However, you run into problems when you don’t know how to use the software. These programs often don’t come with much guidance, even when they are sold as SAAS (software as a service), promising support along the way.
Payroll is something that seems simple - until it isn't. The payroll software can't always just know details of your business that would affect your input data, but many business owners assume that if they aren't getting an error message, they're doing things correctly. This is not the case.
Even if you do get an error message, will you know how to troubleshoot it without waiting in a long phone queue for customer service? SAAS may appear to be outsourcing, but at the end of the day, issues will largely fall on your shoulders alone. Not to mention, payroll mistakes lead to penalties and interest.
Associated Fees and Other Expenses
Doing your own payroll has an associated cost as well. In fact, it can cost more in many ways to do your payroll in-house than the cost of a payroll service.
Penalties and Interest
Speaking of the mistakes resulting from payroll software misuse, common mistakes that we see business owners make include:
- Pay items being set up incorrectly
- Deduction items being set up incorrectly
- Withholdings being set up incorrectly or not routinely updated
If these mistakes occur, you may find yourself facing letters from the IRS.
Payroll software is now subscription-based, meaning you keep paying for the same thing year after year. Paying for payroll software isn’t usually a one-time fee. Every year you’re paying for a “newer” version of the same old software with a bunch of “new” features that don’t really feel all that different.
Employing a Payroll Specialist
Smaller businesses can't employ their own payroll specialist in-house due to the associated costs, including but not limited to:
- Training, ongoing education, and retention costs
- Optional bonuses
Maybe you handle your payroll on the side or ask one of your employees to. Then you have to consider the cost of your time. Let's dive into this more in our next point.
Extra Time Required
Payroll always takes some time. Even if you use a payroll service, you'll have a responsibility to collect and report the correct information to them. We have to admit - for businesses with only a small handful of employees, it may be worth the time to do your own payroll.
However, for some small businesses, the owner or another employee handling payroll on the side can add up to many additional hours of work - especially if you run into errors. How many hours can go into running payroll before it's not worth it to DIY anymore?
The final thing to consider when you’re deciding whether or not to do your own payroll is what your time is worth. This can be interpreted in a few different ways.
Your Personal Time
How much do you value your personal time? Even if you own a business that you’re passionate about, you need time away from it to nurture your personal relationships, time, and outside responsibilities. Chances are, you’re not as efficient with payroll as a payroll specialist is. Is spending more time at work worth it?
Monetary Value of Your Work
Is spending your time on payroll worth it to save a small amount of money? Are you even technically saving money when you consider how much your work is valued at per hour? Be sure you know what your time is worth. Ask yourself: What is my salary? If I were to hire myself, what would I pay per hour?
More Time to Grow Profitability
If you came up with even one idea to grow your business instead of doing payroll in the meantime, it pays off! How much could you grow your business’s profitability if you had more free time to brainstorm, plan, and execute? For example, you could be working on growing your sales and marketing strategies to increase your profits.
Discover the Benefits of Using a Payroll Service
When you handle so many things as the owner of a small business, payroll seems like just another small task. For some people, this can absolutely be done in-house! However, for other people, factoring in the difficulties of using the software, the fees and penalties that can occur, and the extra time required leaves them feeling defeated. At that point, it's time to consider using a payroll service.
At CSI Accounting & Payroll, we offer iSolved for your payroll and HCM needs. We handle the details that might slip through the cracks but make all the difference when tax season comes around. That includes quarterly and year-end local, state and federal tax filings, new hire reporting, and more. We also guarantee payroll compliance and are there to answer any questions you might have. It’s what we do.
Let us take one thing off your plate this year so you can get back to doing what you love. To get a free payroll proposal, click the image below:
Want to learn more about our payroll service? Read about what services are included in a small business payroll fee here.
Bret began working at CSI in 2007. Over the years, he worked his way up from an entry-level marketing position to his current role of manager of our payroll service. Bret is largely responsible for the growth of our payroll division over the last several years. His previous experience and knowledge in sales and management are exemplified in his success here. Bret has a college degree in Computer Networking, a skill that certainly comes in handy in an office environment. Bret is also a Certified Payroll Professional (CPP). Fun Fact: As an active duty member of the United States Marine Corps, he served in Operation Desert Shield and Desert Storm.