Should you hire a Payroll Clerk? CPA? Payroll Service?

It pays to do the math.

By Josh Appling / Sequoia Payroll Services / Fayetteville, Ark.

Many small business owners either attempt to do their own payroll, hire a payroll clerk, or they send their info to a CPA to handle their needs. However, one option that is often overlooked is a payroll service company.  There are payroll services companies out there that are budget friendly. 

And you won’t find better expertise when it comes to payroll calculations, tax laws, W-2s, 1099s and so on. With the current economic climate, many business owners are finding that outsourcing payroll to a payroll service provider is a good way to cut expense, while still getting a quality service that makes everyone happy.

Is this the right solution for your business? Let’s do the math.

Let's say you are thinking about hiring a payroll clerk on staff. Generally speaking, this position would handle all your payroll needs including the responsibility of reporting new hires to the state.

The average wage of a payroll clerk in this area is about $13 per hour. Spread over a month the cost is around $2080 for a full time employee.

When you factor in the business portion of taxes, benefits, workers compensation, etc., this per hour cost can skyrocket to $16 or more! 

When is it essential to have an on staff payroll clerk? If this person wears many hats (such as HR, bookkeeping, answering phones) or if you have over 150 employees, then a full time payroll clerk might be worth the $30K per year it will cost your business. If this isn’t your scenario then it is a hard expense to justify.

Calculating the CPA

A lot of business owners tend to navigate to a CPA for all financial needs. After all, CPAs are the experts of all things financial.  Most CPAs will charge an hourly rate.  The average rate in this area is about $65 per hour.

They generally spend around 8 hours per month doing a customer’s payroll, averaging around $520 a month. Many CPAs are extremely busy and payroll is widely known as a tedious and time-consuming task, so for this reason, many won’t even bother with payroll services. 

Keep in mind, CPAs will generally charge for the extras that go along with payroll, such as making changes (such as address changes, merit increases) or creating additional payroll. In the end, CPAs have bigger fish to fry, and you will have to pay them a little more to make it worth their while.        

Adding up the Payroll Service Provider

 The payroll service provider generally charges an administrative fee and a per check fee. Payroll providers are in a competitive market, so they often provide incentives to new clients, such as a free month or free set up. Some payroll providers match price, some do not. Some charge extra fees for filing taxes, setting up direct deposit or creating W-2s. Others offer an all-inclusive cost with no hidden fees.

When choosing a payroll provider, ask plenty of questions regarding additional fee or hidden costs. As a rule, payroll providers can offer a good rate in comparison to the other alternatives -- as little as $175 per month for 25 employees; or around seven employees for just $75.    

If you've been looking for a profitable solution, maybe it's time to ask yourself a big question: Would you rather pay $2K per month, $500+ per month, or $175 per month to take your payroll off your desk? If all three options provide the same service, you may want to look at ways to cut costs.  Take a serious look at a payroll provider. It could save you hundreds, and possibly even thousands of dollars per year.

Josh Appling is a Certified Accountant with 10 years of Accounting and Human Resources experience. In the summer of 2009 he started Sequoia Payroll Solutions, a full-service accounting and HR company. He aspires to help small business owners run a smooth, successful business by letting him handle the back office tasks, while they focus on their customers. For comments or questions please contact Josh at jappling@sequoiapayroll.com