The Hidden Costs of Payroll and How to Make It More Efficient

Is your business leaking money via payroll?

For every $5 of your cash outflow, nearly $1 goes to your payroll, according to recent research from JPMorgan. But lurking behind this figure may be hidden costs that could be taking a bite out of your business. These hidden costs can include the cost of multitasking, the cost of office space, the cost of upkeep, the cost of mistakes, and the cost of turnover.

In this article, we’ll take a closer look at these hidden costs and explain how outsourcing can help businesses save money on payroll.

The Hidden Costs of Payroll

Many small businesses choose to handle their own administrative processes internally, including payroll. In the early stages of your business, you might have assumed that handling payroll internally with the help of accounting software could save you money. Now that you’re growing, it’s time to look at some of the hidden costs that can further drain your cash flow.

The Cost of Multitasking

Some business owners seek to handle payroll solely on their own. But that only steals focus from the revenue-generating tasks that drive your business forward.

The same goes for businesses that delegate payroll to their HR department. For one thing, delegating these tasks to your HR manager could remove focus from more strategic HR initiatives. Also, with increasing regulation, it’s even harder these days for HR to keep up to speed on the best practices for handling payroll.

The Cost of Office Space

It may seem natural to assign or hire an internal accounting professional to manage your payroll. But this will cost you more than the annual salary itself. 

You’ll likely need to provide an office or workspace for this employee as well as a computer, software and other needed technology. This additional space could, instead, be utilized for revenue-generating activity.

The Cost of Upkeep

Payroll software isn’t just a one-time expense. You’ll likely have to make continued investments in things like:

  • Upgrades
  • Licenses/renewals 
  • Maintenance and security 
  • IT and labor costs

If you’re converting a legacy payroll system to the latest software, it could create delays and errors in addition to the manpower needed to complete the transition.

The Cost of Mistakes

According to research published by SHRM, only 20% of small business owners trust their ability to manage HR without making a mistake.

Mistakes in payroll can cost you. The average cost of a payroll error is $291. And some sources report that the average business makes 15 payroll corrections per year, costing thousands of dollars. That’s to say nothing of compliance mistakes — which can bring hefty fines — and the demand to stay on top of evolving government and industry regulations.

The Cost of Turnover

Payroll errors don’t just cost your business. Errors can negatively impact your employees. If your workers can’t trust that their paychecks will be processed correctly (and promptly), they may start looking elsewhere for employment.

By some estimates, it can cost six to nine months of an employee’s salary to replace that employee. In the meantime, your other employees will have to take on the burden to cover the workload.

The Cost of Time Management

Even if your payroll process is relatively smooth and error-free, there’s still the actual day-to-day cost of management. For example, many small businesses pay employees on an hourly basis. That requires you to log employee’s hours, including any overtime, time away from work, etc.

These processes all demand time and attention. The 2021 Global payroll survey revealed that 61% of respondents said their payroll staff was overwhelmed with queries. That’s a surefire recipe for mistakes and employee burnout.

How to Make Your Payroll More Efficient

As you can see, there are many ways to add hidden costs to your business. But there’s one reliable way to make your payroll process more efficient: outsourcing.

Many small businesses are reluctant to consider outsourcing because they fear it will bring added costs and lost control. The opposite is usually true. An external HR firm will often cost a mere fraction of hiring a full-time or even part-time staff member, and actually give your greater control over the process.

Outsourced HR empowers you to tap into the power of a dedicated HR team. You’ll receive ongoing support from those who understand compliance issues and other demands, giving you clarity and confidence in your administrative processes.

What Can Focus HR Do for You?

Focus HR already has a track record of streamlining and energizing small businesses. One business owner called our services “incredible when it comes to supporting any HR issues or concerns. They handle our payroll, health benefits, 401k, safety training, HR issues … and our workers’ comp insurance.”

We can do the same for you. Contact Focus HR to request a consultation and discover what we can do for your business.

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