On the first go, handling payroll might seem like an effortless job: you just calculate hours, issue paychecks, and you’re done, right? Unfortunately, do-it-yourself (DIY) payroll is easier said than done, with hefty responsibilities like calculating tax withholdings, compliance with employment laws, record-keeping, and timely release of payments.
While small business owners looking to cut costs may find DIY payroll to be a better option, the long-term risks outweigh these savings. Here’s why outsourcing payroll management to experienced professionals is the best investment for your business.
Understanding DIY Payroll: Definition and Benefits
DIY payroll, or “Do-It-Yourself” payroll, is all about managing and processing payroll internally within your company without outsourcing the job to experienced professionals. This means that the business handles all aspects of payroll on its own, from calculating wages and bonuses to withholding taxes and complying with local employment laws.
Pros of DIY Payroll
Here’s why a business owner may want to consider doing payroll themselves:
Cost Savings
Unlike getting it done from experts, DIY payroll cuts down on direct expenses. For small businesses and startups with low budgets, savings on these regular subscription fees (associated with paycheck processing, tax withholdings, and year-end tax preparations) might be tempting. However, it can end up costing them money since the amount of time spent is less on core business activities.
Immediate Access to Data
When you manage your payrolls internally, you have immediate access to your data sheets at all times, reducing the time to respond to payroll queries. Hence, if employees ask about their salary calculation or gross deductions, you don’t have to engage in a back-and-forth with the external provider, which helps improve resolution time and employee experience.
Similarly, if you want to announce a mid-year bonus due to exceptional performance, you can quickly make the adjustments without communicating with a third party. But a prompt DFY payroll service provider, like Transcounts who is also offering small business bookkeeping services in Vancouver, can help negate this by providing ready access to your data.
Cons of DIY Payroll
Doing your own payroll can end up being a recipe for disaster for business owners. Here’s why:
Time and Effort Required
Payroll processing constitutes several operational tasks — you need to track employee working hours, calculate wages (increments, bonuses, and overtime), withhold taxes, and keep track of deductions, all while paying your employees on time. While it appears simple at first, the payroll process can take many hours per pay period, even with 10–15 employees.
In the broader picture, the time and effort invested in managing payroll represents an opportunity cost. This is because all these hours could have been used to draft a new marketing campaign, monitor the next move of your competitor, or even improve customer service. Still think managing payrolls in-house is a good decision for your bottom line?
Risk of Errors & Compliance Issues
Besides having a high time and effort requirement, managing payroll in-house places you at a high risk of errors and compliance issues (because, after all, you’re not a professional payroll manager). In case you fail to remit payroll deductions on time, you may face a late payment penalty ranging from 3% to 20%, depending on the amount and delay period.
More specifically, late filings may hit your business’ profit margins by $100 to $7,500 in penalties. However, the specific interest surcharge may vary depending on your number of employees and the delay period.
Need for Ongoing Education
With DIY payroll management, employers need to constantly stay updated with the latest CRA & provincial regulations and legal notifications. They should be well-versed with the specifics of federal, and provincial tax withholdings, in addition to workers’ compensation (WCB) and employer health tax (EHT). Not only this, but you should also be up-to-date with the latest labor regulations, too
For example, not understanding the difference between an employee and contractor can lead to a payroll tax discrepancy & potential penalties. In this case, you may fail to withhold payroll taxes (remember: contractors are free from tax withholdings, but employees aren’t), leading to huge penalties and back taxes.
DFY Payroll
DFY Payroll simplifies payroll management, handling processing, tax filings, and compliance for accurate and timely payments.
Pros of DFY Payroll
Here’s why you should leave payroll to the professionals:
Expert Handling, Negligible Errors
Since DFY payroll services are usually managed by certified professionals, there’s a higher chance of accurate, reliable records. With years of industry experience supporting their knowledge base, these experts are well-versed in the legal and regulatory requirements of payroll management. So, when you outsource the payroll aspect rather than doing it yourself, you have a significantly less risk of errors (and costly penalties).
Compliance With Tax Laws & Regulations
Outsourcing the payroll aspect to industry experts translates into a lower risk of CRA penalties — since they’re adept with local tax laws and regulations. Handling everything from Record of Employment (ROE) to Worker’s Compensation, payroll professionals reduce the risk for both employees and employers, resulting in on-time, accurate premiums.
These providers also deal with the Employer Health Tax (EHT) applicability, which is legally required after reaching a certain threshold of gross payroll (for example in Ontario & British Columbia with an annual payroll of $1,000,000 for 2024). DFY professionals know how to apply the right EHT rates besides issuing T4s on time, ensuring your business complies with the regional tax laws.
Time Saved
When you outsource your company’s payrolls to the small business accountant in Vancouver, you no longer need to spend hours trying to calculate wages, payroll taxes and timesheets. This frees up your time to focus on core business operations that bring growth and profits. This is why small business accounting in Vancouver will help you save money in the long run.
Plus, by shifting to DFY payroll services, you cut down on the learning curve (and time) associated with processing your payroll in-house. So, no ongoing training and education, costly errors, or CRA penalties — just on-time, accurate payrolls.
Cons of DFY Payroll
While DFY payroll holds the potential to let you focus on what you do best and grow your business, it does have certain drawbacks:
Higher Costs
While DFY payroll management usually costs more than in-house services, the long-term potential savings in terms of time and compliance justify the fees. See, outsourcing the payroll means a lot of your time is freed up, which can be reinvested in core business operations (read: marketing, sales, or customer service). Plus, since payroll professionals are adept with changing tax laws and regulations, they help businesses file their returns on time, steering clear of late payment charges and interest dues.
Less Control
When you outsource payroll, you’re entrusting a third party with the task of managing payments, tax withholdings, and other details, which naturally means not having the same oversight and control as you did with in-house payroll. However, on the bright side, you have the reassurance of outsourcing to experienced professionals who specialize in streamlining the payroll process, reducing the possibility of errors and penalties.
DIY Vs. DFY Payroll: What Should You Choose?
When deciding between DIY (Do-It-Yourself) and DFY (Done-For-You) payroll solutions, the choice depends on the specific needs of your business, including number of employees, and scalability needs. Generally, outsourcing your payroll management is the best option for most businesses, except if you’re just a startup with a team of 1-3 employees with very simple pay structures.
However, once your business exceeds the scale of 3 employees, or if you start hiring a more diverse workforce that includes part-time, freelance, or international workers, you should invest in DFY payroll management. These professionals know how to account for different compensation models, like salary, commissions, and bonuses. Plus, DFY payroll providers are proficient in tax withholding laws and regulations which may vary for different employment models — ultimately saving your business from CRA audits and penalties.
As a result, outsourcing the payroll aspect to experienced teams ensures that your employees are paid and on time, all while complying with legal requirements. This reflects in happier, more satisfied employees and a positive bottom line for your company!
Final Thoughts
Handling payroll on your own might seem like a cost-saving option, but as we’ve discussed, the legal loopholes and penalties can make it far more costly in the long run. From the risk of CRA penalties & audits to the time spent managing the details, there are multiple reasons to outsource the payroll management of your company. Remember, the goal is to run your business in the most efficient manner, and sometimes, that means knowing when to outsource tasks to experts who can handle them better.
So, if you’re ready to take the next step towards a streamlined, more secure payroll process, Transcounts is here to help! Our smooth onboarding process and stress-free tax submissions mean you can breathe easily. With us, you’ll have more time to focus on growing your business while we handle the rest.
Contents
