The Hidden Costs of DIY Payroll Management

Omar Visram
The Hidden Costs of DIY Payroll Management
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When you decide to manage payroll in-house instead of using a professional service, there are many hidden costs to consider. Doing it yourself may seem cheaper on the surface, but once you calculate the actual time, effort and risks involved, outsourcing starts to look like a smarter solution.

Here are some of the major hidden costs of DIY payroll.

Time Spent on Manual Calculations

Are you spending more time poring over spreadsheets or trying to figure out that new accounting software than you are on revenue-generating tasks? Spending time on formulas or software that isn’t intuitive is time better spent elsewhere in your business. Payroll processing requires numerous calculations, such as:

Tax and Benefit Deductions

Preparing payroll means computing deductions for the Canada Pension Plan (CPP), Employment Insurance (EI), income taxes, and any other benefits or garnishments per employee per pay period. This can take 8-10 hours each month—or longer.

Calculating and Reconciling Timesheets and Pay Rates

Before you can even begin processing payroll, you must tally timesheets, confirm employee salaries and hourly wages, and calculate overtime and other compensation variables. Doing this manually for multiple employees takes significant time and effort every pay period. Opting to DIY rather than outsource payroll services means you lose productivity for other tasks—and the time can really add up.

Risk of Errors and Penalties

Payroll calculations also come with considerable risk of mistakes, even if you’re highly skilled with numbers.

Incorrect Payment Amounts

If tax and deduction calculations are wrong, employees' paycheques could be over or under the correct amounts, and your remittances will be off.

CRA Fines and Interest Charges

If you make substantial errors, inaccurate paycheques and Canada Revenue Agency (CRA) remittances could result in undesirable CRA audits, penalties, audits, and fees for late or inaccurate remittances or missed filings.

Public Accountability

As an employer, you’re accountable to the CRA for following all payroll laws and filings. Falsely claiming you know what that entails carries risk. What is the potential cost of even the smallest mistake? You could lose your employees’ trust and damage your public reputation.

Training and Staying Updated With Canadian Tax Laws

You need extensive knowledge of Canada’s payroll legislation and regulations to handle payroll taxes and deductions reliably.

Learning Payroll Basics

Payroll processing requires you or your staff to receive training on accounting baseline requirements and best practices.

Keeping Up With Changing Regulations

Not only is specialized training required, but laws change frequently. Staying current with evolving payroll laws related to effective tax rates, minimum and maximum deductions, T4 requirements, and more takes regular effort. Ongoing learning can be a significant drain on resources, both human and financial.

Investment in Payroll Software and Infrastructure

Managing payroll manually with spreadsheets is so 2008—today, it simply isn’t feasible.

Acquiring Payroll Software

Managing payroll manually isn’t cost-efficient. However, getting a proper payroll software program is a huge investment and requires learning how the program works.

Updating and Securing IT Systems

Adding payroll software to your stack is a hefty expense. And the IT infrastructure you need to maintain data safety and privacy isn’t cheap either—nor is the payroll for an in-house IT services team. Not to mention, cyber threats evolve by the minute, so your programs and infrastructure need regular security patches and upgrades. Is that an ongoing expense you’re willing to pay? Or a risk you’re willing to take?

On top of software updates and system maintenance, you’ll need to cover the ongoing expense of filing business tax forms. While necessary, information technology expenses eat into the savings of DIY payroll.

Opportunity Cost of Not Focusing on Core Business

Just as important, the hours you spend processing payroll eat into time better spent growing your core business and revenue.

Less Time for Critical Functions

The more effort invested in payroll processing, the less time you devote to essential revenue activities. DIY payroll eats into time you could spend growing your business.

Rather than focusing on higher ROI activities like business development and customer acquisition, your attention gets diverted to back-office administration. The opportunity cost of that lost time? Immeasurable. Plus, your ability to stay focused takes a major hit, which can eventually lead to work-related stress and burnout.

The Bottom Line

While DIY payroll management may seem cheaper on the surface, it comes with sizeable hidden costs to consider. The hidden costs of DIY payroll processing vs. outsourced payroll services will show in lost time, unnecessary risk, additional infrastructure expenses, and lost opportunities. 

Outsourcing to experts in payroll services is often more affordable in the big picture. You get the added capabilities of an entire team of payroll services professionals, which makes it an attractive option for supporting your business’s growth.

And the peace of mind it offers is priceless.Looking for tech-enabled payroll services? Get in touch.

Are you struggling to keep up with payroll for your business?

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