After all the long, hard days (or weeks, or months or years) of doing everything yourself to build up your small business, are you finally at the point where you’re ready to hire your first employee?
Congratulations! Getting to this point is a really big deal.
Now that you’re about to become an employer for the first time, you’re going to get hit with a bunch of new decisions that need to be made. One of the things you’ll have to decide is:
What Should I Do About Payroll?
If there’s one thing I know about employees, it’s that they are really concerned about getting paid.
But adding an employee means that you’ll also be responsible for paying the government too, in the form of payroll taxes (which fund Social Security, Medicare, and unemployment benefits) and most likely income tax withholdings as well.
So now you’re potentially looking at payments to your employee, the federal government, and the state government. Plus, you’ll have to issue reports (pay stubs, W2s, payroll tax returns, new hire reports, etc.) to your employee and the government at regular intervals.
How do you keep track of it all?
The way I see it, you’ve got about 3 options:
- Do it all yourself
- Sign up for the cheapest payroll processing you can find
- Use a full-service payroll processing company
When you’re struggling to keep up with the growth of your business and cash-flow is tight, it can be really tempting to leap at options 1 or 2.
Initially, it looks like those are the cheapest ways to get payroll done. However, there could be hidden costs that far outweigh the benefits of either of these options.
One of the hidden costs for doing it yourself is the opportunity cost of your time.
If you’re spending hours to manually compute payroll and write out paychecks, that’s time that you’re not spending on marketing, networking, etc. that could grow your business.
If there are things you could do for your business that would bring in thousands, or tens of thousands of dollars of revenue, if only you had time to do them, then you would just be throwing that money away by choosing to do payroll yourself.
The other hidden cost that I’ve seen come back to bite people is a lot more painful, and if your business needs every penny available to survive, it could put you out of business.
That hidden cost is the penalties and interest for making a mistake on your payroll.
The most deadly, yet all-to common payroll mistake I see from fast-growing small companies is not paying the payroll taxes and income tax withholdings to the government when they are due, and the consequences can be devastating.
Could your small business write a check to the government, today, for ten thousand dollars and still thrive? What about twenty thousand dollars? Or even more?
Or would making a payment like that suck every last cent out of your business bank accounts?
Would you be able to make payroll, pay rent, make loan payments on your equipment? What happens to your business if you can’t?
If you chose a “cheap” option for payroll to save maybe a thousand bucks or so each year, are you really better off if you make a mistake and end up owing thousands (or tens of thousands) to the government?
Because it’s so easy to get tripped up with payroll requirements, and the penalties can be so severe, it make sense for many small businesses to avoid the cheap payroll processing options and to work with a reputable full-service payroll processing company.
Yes, it will cost more each time you run payroll. However, if they take on the responsibility to make sure that the tax payments are made on time, and that the payroll tax returns are filed, and the W2s are sent out on time, so that you don’t have to worry about getting whacked with penalties and you can just focus on growing and running your business, it could save you a bundle of money (and stress) to choose the option that might seem more expensive at first glance.
I don’t offer payroll services through my company, but I do help connect our clients with a reputable payroll provider when they need one.
