Outsourcing Payroll With a PEO

Balancing the needs of your growing business with the time-consuming demands and complexities of payroll administration can seem impossible at times.

But for about the cost of hiring one full-time employee, you have an option that can expand your human resources (HR) expertise exponentially and give you time back to focus on your business. That option is outsourcing payroll with a professional employer organization (PEO).

A full-service and comprehensive HR solution, outsourcing payroll with a PEO provides you access to a team of experts with knowledge across all areas of HR. A PEO will handle payroll processing, guide you on compliance with labor laws, and manage payroll taxes, but that’s just the beginning.

More and more small businesses are outsourcing payroll, meaning they are hiring a third-party vendor to handle all or some of their payroll-related functions. Offloading the burden of payroll administration gives business owners time back to focus on their core business.

When considering outsourcing payroll, there are generally three types of providers to explore:

• HR technology solution or HCM software: A software-only solution allows you to streamline some of the steps within the payroll process, but you’ll still require an internal team to handle payroll administration. The provider’s level of HR support will also vary, so they may not be able to offer guidance on HR compliance or advise on the payroll process.
• Administrative services organization (ASO) or HR outsourcing (HRO) provider: An ASO or HRO lets you choose which HR outsourcing services you need, which includes payroll processing or specific payroll-related functions. In some cases, these providers will also give you access to HR technology to help with the payroll process. In most cases, however, you will still need internal staff to manage certain aspects of payroll.
• Professional employer organization (PEO): A PEO is a full-service HR outsourcing solution that includes services such as payroll processing, benefits administration, risk management, workplace safety, and compliance expertise. A PEO operates under a co-employment agreement with your business, allowing the firm to manage most HR-related functions on your behalf. You’ll also be able to utilize the PEO’s HR technology, simplifying several processes for your employees, such as tracking hours worked, requesting time off, or updating their direct deposit details.

An in-house payroll system is handled internally by your own employees. These could be staff members who manage other HR-related functions, or more commonly for small businesses, employees who juggle additional job responsibilities outside of HR. It might even be you, the business owner, managing payroll each week.

In-house payroll means you or your employees are managing all payroll-related tasks on your own, from completing and filing new-hire paperwork to tracking time and attendance for your employees, calculating withholdings, processing benefits deductions, managing garnishments and levies, processing checks or direct deposits, handling payroll tax filings, and more.

Insource payroll is the same as in-house payroll, meaning both refer to employees on your staff who manage the payroll process for your business. Alternatively, outsourcing payroll means you are engaging a third party to handle some or all of your payroll-related functions. Partnering with a professional employer organization, for example, allows the PEO to manage the payroll process on your behalf.

Let’s look at the differences between in-house payroll and outsourcing payroll, specifically for small and mid-sized businesses that engage a PEO.

Control Over the Payroll Process

• In-house: Since your team is handling payroll, you have complete control over how the payroll process works and what tools are utilized. You are also fully responsible for ensuring you’re complying with applicable employment laws and regulations and filing payroll-related taxes.
• Outsourced: Your PEO will manage most of the payroll process on your behalf, including providing access to HR technology that will give you and your employees insight into hours worked, their pay, and any deductions. However, a PEO won’t make payroll-related decisions for you, such as how much to pay an employee.

Payroll Expertise

• In-house: You’ll need an employee (or employees) with knowledge on how to properly track time, process payroll, accurately calculate withholdings, comply with employment laws and regulations, file and remit payroll taxes, and more.
• Outsourced: A reputable PEO will have HR experts with extensive payroll knowledge to manage the process. They will also help you navigate compliance, taxes, and tricky situations, such as properly recording breaks according to local laws and managing schedules outside of the typical workweek.

Time Commitment

• In-house: Your internal team will need to process new-hire paperwork as employees join the company, ensure hours worked are properly tracked, process payroll each pay period, ensure paid time off and sick leave are accurately tracked, process benefits deductions, and manage garnishment and levy payments, in addition to calculating, filing, and remitting payroll-related taxes.
• Outsourced: A PEO takes the burden of payroll administration – and the many responsibilities associated with it – off your plate so that you and your employees can devote more time to core business functions. You will likely need a liaison who can submit/approve hours worked for hourly employees and answer questions that may arise.

Employment Laws & Regulations

• In-house: It’s the responsibility of you and your payroll team to understand employment laws and regulations and how they impact your business. A failure to do so – even unintentionally – can result in costly penalties, fines, and lawsuits. So, your internal team will need to understand laws and regulations that impact payroll administration – and stay up to date on the latest changes.
• Outsourced: With a PEO like G&A Partners, you have peace of mind knowing that our payroll and HR compliance experts will keep you updated on the latest workplace requirements and how they impact your business. This will help you make informed decisions to keep your business compliant.

HR Technology

• In-house: HR technology can streamline processes, helping you to reduce errors and make tasks such as payroll administration more efficient. But many small businesses may not have access to the latest technology, leading their HR teams to track time and attendance through spreadsheets and manually process payroll.
• Outsourced: Engaging with a PEO gives you access to integrated HR technology, eliminating the need to reenter data across multiple platforms, providing self-service options to employees, and saving employees time on common HR tasks.

Data Security

• In-house: Small and mid-sized businesses are vulnerable to cyberattacks, making it imperative that your data and systems are properly protected. When handling payroll in-house, you are responsible for securing sensitive employee data and complying with privacy laws and regulations.
• Outsourced: Working with a reputable PEO that has security measures in place will give you peace of mind that your employees’ data is protected and you’re compliant with privacy laws.

Outsourcing payroll begins with determining what services you need and who your provider will be. This is an important step that shouldn’t be overlooked, as assessing your HR needs will help you narrow down the type of provider that will best serve your company.

For example, let’s say you are currently managing payroll and most of your HR functions in addition to running your growing business. That’s likely limiting the amount of time you can dedicate to revenue-generating activities. In this situation, only outsourcing payroll may not give you as much time back as you need, and it may be advantageous to explore a full-service HR outsourcing solution with a PEO instead.

But what if you already have an internal HR team in place? Your team may want to focus on more strategic HR – such as improving employee retention – or they may lack the expertise or time to properly execute payroll. Or perhaps your team is manually tracking time and attendance. In these cases, an ASO or software-only solution might be the answer.

• Setting up payroll
• Verifying employment for current or past employees
• Processing payroll cycles (including weekly, biweekly, semimonthly, and monthly)
• Printing, filing, and mailing Forms W-2 and W-4
• New-hire reporting
• Managing accruals for paid time off (PTO), sick leave, or vacation
• Submitting online payroll
• Filing payroll taxes
• Providing standard payroll reports
• Processing automated standard deductions
• Managing administration of garnishment, levy, and child support payments
• Payroll technology that may provide self-service options for employees and managers

After you’ve chosen an HR outsourcing provider or PEO for your payroll administration and signed a contract service agreement, you’ll start the onboarding process with your new provider. This process will vary depending on the provider and services you’re receiving.

Here’s a brief overview of the onboarding process at G&A Partners, which typically spans six weeks:

1. Gather data: You’ll provide company and employee data and other information that will allow a PEO to set up payroll and new accounts, prepare for payroll processing and reporting, and implement new technologies. At G&A, our onboarding team will set deadlines to help you through this phase.
2. Breakout conversations: These discussions vary based on the services you are receiving but could include topics such as benefits, reporting, handbook reviews, compliance issues, job description reviews, and more. During this time, G&A may identify potential compliance issues and offer suggestions on how to address them.
3. Training: Your staff will undergo training on new technology systems implemented by G&A.
4. Benefits enrollment: If your company has chosen to offer benefits plans through G&A, your employees will elect their benefits and complete open enrollment.
5. Payroll complete: The successful processing of your first payroll cycle with G&A marks the end of onboarding.

While a PEO will handle most of your payroll administration, it’s a good idea to designate an employee as a liaison between your employees and the PEO. Your PEO will also file and remit quarterly payroll taxes on your behalf and will have payroll-related reports available for your review. Additionally, a PEO will assist with onboarding new employees and handling new-hire reporting.

Keep in mind: Although a PEO can handle many of your payroll needs, you’ll retain key responsibilities related to payroll, such as setting salaries or hourly wages for employees, hiring, promoting, or terminating employees, determining which paid holidays to offer, scheduling your staff, approving leave policies, and deciding which employees have higher-level access within any HR technology platforms.

Outsourcing payroll with a PEO is a popular option amongst small and mid-sized businesses. In fact, more than 200,000 businesses nationwide receive HR services from PEOs.

With a PEO, payroll outsourcing is part of a comprehensive HR solution that includes access to Fortune 500-level employee benefits, workplace safety, benefits administration, risk management, and more. Some PEOs like G&A Partners provide flexible options, tailored to meet the specific needs of you and your employees.

A PEO’s services are also scalable with your business. PEOs have teams of experts and technology available to support you, so as your business grows, your PEO is already equipped to manage your increased HR needs.

When you outsource payroll with a PEO, you offload the administrative tasks related to managing payroll. But in addition to payroll administration, you also gain a valuable partner to help navigate your HR needs.

The potential benefits of outsourcing payroll with a PEO like G&A Partners:

• More time for you and your employees to innovate and focus on growth initiatives
• Your employees get the care they deserve, contributing to a positive company culture
• Competitive (and affordable) benefits packages through a PEO, helping you attract and retain top talent
• Simplified and streamlined HR functions, allowing your team to focus on core business functions
• Experienced HR professionals, available to guide you through any employee-related situation
• State-of-the-art HR technology, which streamlines daily HR tasks, increases productivity and efficiency, and reduces costly errors
• Guidance on the latest workplace-related laws and regulations, helping your business avoid noncompliance
• Reduced HR costs, as the cost to engage a PEO is typically equal to the cost of hiring one, full-time employee – yet you gain access to a team of HR experts and the latest HR technology.

Without the proper expertise, resources, and time, processing payroll accurately and on time (while also meeting quarterly tax deadlines and ensuring compliance with labor laws and regulations) can be complex and overwhelming for small and mid-sized businesses. But a failure to do so can lead to a lack of trust with your employees, more time spent fixing payroll errors, or even costly fines and penalties for compliance violations.

Outsourcing payroll companies, however, are staffed with payroll experts who understand the intricacies involved in processing payroll and compliance experts who know the latest labor laws and how to apply them to your business. Payroll is their business.

An outsourcing payroll company can help alleviate payroll challenges for small and mid-sized businesses by:

1. Providing Expert Guidance on Payroll Compliance

Ensuring your business is compliant with the latest local, state, and federal labor laws and regulations is your responsibility. A failure to do so – no matter whether you intended to – can result in costly penalties, fines, or lawsuits. And the financial impact and damage to your company’s reputation can be significant.

With G&A Partners, you gain a team of HR experts who understand and stay up to date on the latest labor laws and regulations. They will identify potential risk areas and provide guidance on how to become compliant, such as (but not limited to):

• Classifying employees as exempt vs. nonexempt
• Determining when an independent contractor should be an employee
• Meeting local, state, and federal minimum wage requirements
• Ensuring pay equity
• Accurately calculating tax-related withholdings and overtime pay
• Keeping time-tracking records
• Verifying a new hire’s eligibility to work in the U.S.
• Processing and delivering Forms W2 to employees

2. Improving Accuracy and Delivering Payroll on Time

A reputable PEO will have experienced payroll specialists to handle even the trickiest scheduling and payroll situations, and they will have integrated technology to help reduce errors and save time.

Employees expect to receive accurate paychecks on time, and doing so builds trust with your workforce. With a PEO by your side, you can rest assured that payroll will be processed accurately and delivered on time.

3. Gaining Access to Integrated HR Technology

An integrated HR technology system simplifies payroll by automating deductions and providing robust reporting tools. Self-service options give your employees the ability to easily clock in/out, request time off, or manage benefits elections. In addition, your managers can quickly finalize schedules, approve leave requests, and more. And when your payroll system is part of an integrated HR system, data flows easily from one system to the next, eliminating the need to reenter data, which reduces errors and saves time.

Are you asking yourself, “Should I outsource payroll with a PEO?” If so, there’s a good chance one or more of these scenarios sounds familiar:

• You have one person managing payroll for your business, but they are overwhelmed because they also have other job responsibilities.
• You’re noticing too many errors in your payroll each pay cycle or missing important tax deadlines, due to a lack of expertise, resources, and time.
• The time you’re spending managing payroll is keeping you from running and growing your business.
• Your company is growing rapidly, but you lack the HR infrastructure to properly manage HR and hire new employees.
• Benefits through the open market are too expensive, but you want to offer competitive benefits packages to improve recruiting and retention.
• You’re concerned that your company may not be compliant with local, state, and federal labor laws.
• You have a small HR team that handles payroll in addition to HR and benefits administration, but you need them to focus on more strategic HR initiatives, such as improving employee retention, performance management, or company culture.
• Your employees are using spreadsheets to track time and attendance, and you are manually calculating and processing payroll.
• You are seeing increasing errors because you’re utilizing multiple HR platforms that aren’t integrated, forcing your employees to reenter data from one system to another.

The value of outsourcing payroll with a PEO goes far beyond payroll administration. When you engage G&A, you gain a strategic partner that will help you provide the best for your employees and support you as you grow your business.

And if that’s not reason enough, consider these statistics from the National Professional Employer Organization Association (NAPEO).

Businesses that utilize a PEO:

• Grow 7-9% faster
• Have 10-14% lower employee turnover
• Are 50% less likely to go out of business
• Experience a 27.2% average ROI using a PEO (in cost savings alone)

Outsourcing payroll with a PEO can be a game-changer for growing businesses. But is it the right option for your company?

Here are four questions to ask yourself as you consider whether outsourcing payroll with a PEO is a good idea for your business:

1. Are you already outsourcing other HR services or do you have plans to do so in the future?
   Consolidating HR outsourcing providers – and software platforms – can be more cost effective. It also leads to a more unified HR strategy when all of your HR needs are being managed by one provider. A PEO is a full-service solution that manages all of your HR needs and provides integrated technology to create a single source of truth. That means you and your team enter data once, saving time and reducing errors.
   
2. Do you feel confident that your business is compliant with employment-related laws and regulations?
   Workplace requirements are evolving at a rapid pace, making it difficult to stay up-to-date and compliant. However, noncompliance can be costly – in the form of penalties, fines, and potential lawsuits. If you’re unsure whether your business is compliant, or if you find it challenging to understand how labor laws apply to your company, you may benefit from a PEO that will provide compliance guidance and update you on changing requirements. A software-only payroll solution likely won’t come with expert guidance to help you navigate HR compliance.
   
3. Are your employees leaving for better pay and benefits at other companies?
   Employee retention is a concern for many small and mid-sized businesses that lose talented employees to major companies that can offer better pay and benefits. A PEO like G&A Partners can provide salary data to help offer more competitive wages for your location and industry. PEOs also offer access to high-quality, affordable health plans that are often impossible to find on the open market, plus ancillary benefits that meet more of your employees’ needs.
   
4. Are you planning to increase growth through acquisitions of other companies?
   Part of your acquisition strategy should include how to ensure a smooth transition for new employees from acquired businesses and how to manage growing HR tasks. A PEO will manage onboarding on your behalf – from collecting paperwork to setting up new employees in payroll to managing benefits enrollment. In short, you get more time to focus on making your new employees feel welcome.