What is the real cost of running a payroll?

Do you think running a payroll system is easily manageable? Think again. Running a payroll can be quite a hefty activity, especially if you are untrained in the art of modern payroll practices. However, the majority of HR managers, finance professionals, and legal experts are often unaware of the costs associated with running a payroll management system.

Now that your brilliant concept has become a corporation, it is time to streamline everything. From organizing employee salaries to managing payroll, everything is going to make a dent at your savings. People often think that running payroll is basically adding and subtracting numbers. However, it is much more complex and expensive than that.

What Does Payroll Include?

Before diving into the complex world of payroll expenses, you need to understand what are the tasks and activities associated with compiling and running a payroll. Here is a list of multiple jobs that payroll teams have to carry out for running a successful payroll:

  • HR Master Data management
  • Historical Payroll Data maintenance and management
  • Managing joiners and leavers
  • Managing one-time transactions; deductions, allowances, payments
  • Management of day off, time and resulting deductions and/or overtime dues
  • All the above has to be done in full compliance with ever-changing labor and statutory rules and legislation
  • Taxation management and Filing taxes
  • State, federal, direct and indirect tax, tax filing, tax withholding, statutory and labor tax calculation

These are merely a handful of the jobs of any payroll team. It takes a village, and the job demands much more than just adding numbers and paying salaries to the employees.

However, while some corporations understand and value the complexities associated with the payroll management systems, they still believe that in-house payroll systems will save them money. That is not true.

What Is the Real Cost of Running a Payroll?

On average, even the most basic payroll will cost an additional 10 or 20 percent of the total salaries paid to the employees. Here’s a categorical breakdown of costs associated with running payroll.

Payroll Processing Costs

Well, in order to run even the most basic payroll system, you will have to pay additional money. In the beginning, you will determine whether or not you want to do everything by yourself or pay an outsider for the job.

If you decide to keep everything in-house, there are several online solutions available nowadays. Typically, you can set up a payroll manually in Quickbooks or a separate accounting system.

The expenses for setting up such apps may be regular, weekly, or per employee for such apps. This will serve as the most basic cost associated with running payroll.

Moreover, since you are running the payroll system, you will also have to allocate resources for managing it, such as electricity, personal computers, online systems, the internet, etc. These additional facilities add to the cost of managing and running a payroll system.

Paper Check and Printer Fees

If you are environmentally-conscious, you can opt for the digital method. This way, you can offer a direct deposit of salary into the employee account. However, this will cost you extra charges in order to make a payment via bank.

On the other hand, companies can also opt for a more traditional method and offer paper checks. This way, you will have to pay the additional cost associated with printing the checks. This cost also includes the charges for the paper, electricity, and other materials used for printing checks for all the employees.

Taxation Charges

As a corporation, you must oblige and pay federal taxes for employee paid taxes. This basically means that you will have to subtract any money from each salary for the employee who pays the sum of taxes.

Moreover, you will also have to pay corporation taxes imposed by the local and federal governments. Apart from paying salaries to your employees, your corporation will also be subjected to paying taxes for running your business. This tax amount may vary from place to place. However, the only thing that is assured is that you will have to pay taxes. This will have to be accommodated in the payroll management system

Since these taxation laws vary from place to place, the amount of time taken to introduce and manage these changes in the payroll management system also varies. However, your payroll team will have to constantly stay in sync with the local laws, and update the records on the go. This will result in time consumption, and will end up translating into higher maintenance costs for the payroll management system.

Human Labor

Lastly, there will be employees who will run and manage the payroll system. They will also need to be paid for their services, and this will not only add to the salaries, but also to the cost of running a payroll system.

They will take care of the payroll system, and invest hours into carefully planning and running it throughout the year. Therefore, they will also be paid for their services. Not only will they manage the salaries of other employees, but also their own.

This additional cost will depend on the number of employees managing the system. However, there is usually a team behind the proper management of any payroll system, and it takes a lot out of your pockets at the end of every year.

What Is the Bottom Line Here?

Running a Payroll system is more than just handing out checks to employees. There are taxes involved, and various calculations that drive up the cost. Since these calculations are quite complex and must be handled properly, companies have to hire entire teams of professionals for managing the payroll system.

Big corporations may have the resources to hire a payroll management team, but smaller companies often hand this job over to HR and other departments. Therefore, the real cost of running a payroll system is quite expensive, and hiring a third party is often the best solution for cost-effectiveness.