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July 18, 2018

Payroll, Benefits and HR — Is Outsourcing Right for You?

Anyone who’s run a business will tell you that the hard part about “making payroll” is earning the money to pay it out. Maybe, but the physical act of executing payroll isn’t straightforward. There is a plethora of paperwork and records requirements, filing requirements, withholdings to perform and third-party payments to execute. Assuming you’ve done all that correctly, now you need to get the funds to the employee. These logistics are common to any business, but to a small business they can seem daunting. Mistakes can be costly to a business of any size.

You know you need to get this stuff right, the next question is how? There are lots of service providers out there that are experts in helping businesses deal with these logistics. Payroll firms exist to outsource those processes, and some even integrate with your business accounting software. Benefits consulting firms and HR consulting firms are in every major metro area, and there are some large companies that offer all of these services. Are any right for you?

Payroll Outsourcing — A Good Small Biz Option

The scale of your operation impacts both whether outsourced services will be cost-effective and the number and complexity of HR/payroll regulations you need to comply with. In addition to payroll, and regardless of the size of your business, you will likely need to offer some kind of benefits package in order to be competitive in the labor market, and you’ll need to maintain some type of employee handbook of personnel policies.

Payroll outsourcing is almost always a cost-effective tool for a business with 10 to 50 employees.

Most service providers will offer this service for a base fee of $150 to $250 per week, with a small additional fee per check issued. That base fee could be problematic at a very small scale. For example, if your payroll consists of three checks and amounts to $2K per week, you’re potentially agreeing to a 10 percent charge, one that comes without any ancillary services like benefits sourcing and HR consulting. So, a very small business (one under 10 employees) could benefit by looking at simple payroll solutions such as those offered by software providers (or simply hit the books and figure out how to do it right yourself).

For that same small business, consultative services in HR and benefits may be beyond the budget. If that’s the case, such a business may wish to look to deal with a benefits “broker” who will charge a one-time commission, rather than on ongoing fee.

As You Grow, Hire a Pro!

A business between 10 and 40 employees will see the need for and feasibility of consultative services phase in as it grows. But when your business gets close to the 50-employee mark, that is where other considerations come into play. Most federal labor laws exempt “small businesses” — defined as a company with less than 50 employees — from compliance with the more onerous provisions. Crossing the 50-employee threshold can drastically increase administrative costs, and that day needs to be planned for accordingly if you’re anticipating your business growing to that point.

Bottom line, at very small sizes, do your payroll yourself or look for a simple software solution. At 10 to 40 employees, consider payroll outsourcing, but not necessarily consultative services beyond basic benefits aggregation. At 40-plus employees, it may make a lot of sense to retain a full bank of HR consulting services to prepare for the “big leagues” at 50 and keep those services until you’ve grown into the need for a full-time internal HR person. The mistakes you will avoid and the peace of mind you will gain far outweigh the cost for all but the smallest operations.

Payroll and HR Take Time — and Experience

If you’re considering handling your HR policy writing and handling payroll, you must first assess your knowledge level and figure out what you can handle. If you’ve come from a corporate, HR or accounting background yourself, you will likely have at least some of the experience and knowledge necessary to get your HR policies and payroll started on the right foot, but other professional backgrounds may not have afforded you this needed insight.

Next you must look at the quantity and value of your time spent on these chores. Even processing a simple payroll for three to four employees will require, on average, one to two hours of work per week (inclusive of all the back-end requirements). That time requirement will grow as your business does. Now add in time for dealing with personnel issues and administering benefits. For the smallest firms these things will consume four to eight hours per week, so unless you run a payroll business or HR consulting firm, chances are your time could be better spent doing what you do best — making or selling firearms, providing training, marketing and developing customers.

The Responsibility Factor

Being an employer means you have a fiduciary responsibility to your employees. According to the government, you’ve assumed some responsibility to look out for their best interests and protect them, and that comes with a high standard of compliance both ethically and statutorily. Additionally, you assume the de-facto role of tax collector, financial custodian and immigration enforcement officer. These responsibilities and the penalties for breaching them only grow as your business and your team do.

Ask yourself at what scale are you comfortable shouldering these responsibilities, as there are lots of people out there to help you navigate the waters and execute your duties. Outsourcing can help you maximize the value of your time while avoiding costly mistakes.

About the Author
Josh Fiorini has a wealth of experience in manufacturing, business management and finance both within and without the firearms industry. He was the CEO of PTR Industries, Inc. for seven years and spent the first decade of his career in finance holding positions as an equity analyst and portfolio manager before starting his own hedge fund which led him to the firearms industry. This experience, along with a deep background in manufacturing, banking and private equity, has made him a sought-after contributor on numerous boards, discussion groups, media outlets, corporations and community organizations. Currently, Fiorini invests his time with non-profit initiatives and acts as a contributor and management consultant to various firms in the firearms industry. His activities have been reported in such publications as The Wall Street Journal, The New York Times and USA Today.

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