How to Start A Payroll Service
A payroll service business is a financial business. As the world is revolving or spinning, different business ideas keep clamoring in the minds of humans and one of the most lucrative businesses to start is a payroll service business. There are a lot of companies, industries, offices, government and agencies, most of these organizations need a payroll service provider.
A payroll is the list of employees of that company that are entitled to receive pay and the amounts that each should receive. Payroll service business is a massive industry predicted to reach $45 billion by 2020. Payroll is a service for employers- and that makes it a natural complement to other employer service businesses: merchant services (credit card processing), group health insurance and banking. Payroll regulations can be very complicated and tedious for employers so they may like to go with the option of engaging a payroll service provider. That’s where the demand for a payroll service provider comes in. Many companies in this digital age outsource their payroll because it helps them to concentrate on their core business.
Functions of a Payroll Service Business
As a payroll service provider, your functions are: the responsibility of handling employee’s wages and salary, deductions, calculate payroll taxes, hours employees spent at work. It is your responsibility to translate all that information into paychecks or direct deposits for each employee.
You may choose to specialize in a particular area of payroll service business but that solely depends on your processors who may demand an extensive payroll service provider and the following are a large number of payroll related services:
- Pay adjustment
- Processing Federal and State Tax Income
- Computing time and wages
- Issuing Manual Checks
- Voiding Checks
- Direct Deposits
- Benefits Administration
- Bookkeeping
- Compilations Services
- Wage Garnishments
Tips on How to Start A Payroll Service Business
Business Model
The first factor to consider before starting a payroll service business is your business model. As a payroll service provider; do you want to provide specific services or general services to your clients? Before you decide on the business model, look at the resources you have available or the qualifications at your disposal. If you want to serve larger companies such as those with 1,500 employees, you will have to perform multitasking duties such as multi-state, multiple payday, wage garnishment, and benefits processing. Larger companies don’t like using inexperienced payroll service provider. It will be better you go for smaller companies or smaller clients because it will be very tedious to opt for larger companies. A smaller company is more likely to have one payday, such as weekly or biweekly, and all its employees in one state or one particular location which makes your work very easy.
Processing Software
A Processing Software is one of the indispensable part of a payroll service business, it automates the task of running payroll. There are many choices of payroll processing engines which have advantages and also challenges. I will suggest that you inquire from a trusted consultant in the payroll space to help you make the right choice. You can also use the internet to check the recommended payroll processing software that has worked for other payroll service providers. I suggest that you only consider platforms that offer integrated human capital management such as Timekeeping, Human Resource database, Human Resource Services. Your customers will be able to log into a secure web portal to submit payroll data and use the platforms’ other services.
Payroll Service Options
- Outsourcing Payroll
- In-house Payroll
- Hybrid Payroll
1. Outsourcing Payroll
Outsourcing is an agreement in which one company hires another company or payroll service provider to be responsible for the organization payroll activities. The reason why organizations outsource their payroll is to enable them focus on their business. A payroll service provider can make a lot of income if a company decides to outsource its payroll service. There are various reasons why a company may want to outsource its payroll and they are:
- It saves time and it increases productivity: A business or company that processes its payroll will discover that it causes a lot of time wastage. Outsourcing payroll service allows employers to concentrate on core business and this will increase the productivity of the company. Outsourcing payroll for your business frees up time. Employers need to make contact with their outsource payroll specialist that will keep track of benefits deductions, garnishments, new hires and terminations.
- Guaranteed Business Security: Payroll processing is a very risky business, in order for companies to avoid risk, embezzlement of funds and tempering with company’s file for personal gain, they may choose to outsource their payroll. Most payroll service have technology that can spot fraud and this will help to reduce fraudulent acts among employees.
- It reduces cost: The cost of processing a payroll can be minimizedby hiring a payroll service provider. Organizations or companies do the math; they try to figure out how much they will be spending if they are managing their payroll service. When they calculate payroll each time, wage garnishments, training and maintenance of payroll programs, when the comparison is made with other payroll service providers plan then the best option they go for is to hire a payroll service provider. To hire a payroll service provider is cheaper that maintaining your organization payroll.
- To Avoid Mistakes: Outsourcing a company’s payroll is very good, it helps the company avoid errors and mistakes. Penalties for payroll mistakes, omissions or late tax payroll fixing can be very costly.So to avoid this catastrophe, the best thing an organization can do is to outsource its payroll. Payroll mistakes are very painful and agree employees can spell doom for the organization; a good payroll service provider is likely to make less mistakes compared to an in-house service provider. A small business can take advantage of a good payroll service expertise.
2. In-house Payroll
In-house payroll is the agreement in which an organization installs and utilizes a payroll application on a private cloud server. Such applications may come from bigger software company’s development. There are many benefits of in-house processing software and they are:
- Data Flexibility and Security: In-house protects companies information because it offers data control compared to outsource, in addition in-house system offer ability to make changes to payroll, something most outsource systems cannot give.
- Information Access: Most in-house systems give employees access to company’s information without any barriers, which makes it very easy for companies to update their information.
3. Hybrid Payroll
Hybrid Payroll combines features of in-house and outsource systems. Many organizations find it very difficult to select either outsource or in-house systems. With hybrid solution you have the best of both. The following are benefits of Hybrid System:
- In-house flexibility: With Hybrid solution you retain the ability to access payroll information and also secure data.
- Outsource Tax Expertise: Outsource systems are expert in the area of payroll tax and labour law and you can also be using in-house processing features.
It is the duty of the organization to choose the best payroll system they want to adopt but if they can’t make a decision between outsourcing and in-house then Hybrid solution is always there.
A Team of Processors
Every payroll company needs a team of processors and you must be willing to train them and to support them. The next thing is to plan on supporting them approximately. Look around for experienced people to join your team, consider people leaving big payroll firms, accounting firms and banks. Also consider people who have been processing payroll for smaller companies. People with accounting or management background will also be a good choice for a payroll service business. As you interview your employers, pay a close look to their management and accounting skills because a payroll service provider must be an embodiment of these skills.
Sales Engine
Your Engine should include contact management (CRM), pricing, proposals and customer on boarding. Your sales software should support your sales team, management, customer service team, and your external referral sources.
Creating a Business Website
Every payroll service provider must build an online presence where potential customers can find ways to connect to you and can view your company’s information. You might also consider using the social media, most companies are on social media and this will make it very easy for them to access your business. You can also consider referrals such as benefits brokers, bankers and other centers of influence. You can offer to give them commission which may range from 25% to 50%. This will give your business free sales. Also consider what type of clients your referral sources will bring in. Are they small groups? Even if you want big groups, you may have to accept series of small clients before you starting getting a big group.
Target Customers
As a payroll service provider you must define your target customers, analyze and know their needs and also how you can meet them. It is very important to note that not every business engage the service of a payroll provider, some business don’t outsource their payroll. The target customers for a payroll service business are banks, companies, agencies, state and federal civil service and government agencies, academic institutions and many more. Some companies or agencies have employees in different geographical locations and this may make payroll service very tedious and complex.
Choosing the Right Clients
You have to take extra precaution in picking your client, you must avoid difficult and hot tempered customers. Don’t just accept a client simply because you are just starting out, make sure you run a background check on every potential client and do not neglect the warning signs. Accept only clients with verified business address and be very careful with clients that want to pay in instalment or arrears. Also go for clients with steady payroll instead of one- time client.
Pricing Structure and Services
The law of demand and supply says the higher the price, the lower the quantity demanded. Create a structural price or the universally accepted price for a payroll service business. A high price can chase away your customers and your competitors can easily lure them. Create a structured service list for marketing and informational purposes. Services may include direct deposit, live checks, paycheck deductions, wage garnishments, paid time off tracking employer contributions, payroll reports and reminders, employee self-service and mobile access. Examine the clients’ number of employees, pay frequency and complexities of payroll when establishing business. Consider offering discounts, commissions and free trial. Use payroll software that supports your services.
Registration of Business
It is very essential for you to register your business so that you can operate with a legally registered business name. The government of each country has a stipulated procedure on how each business should be registered. Register your business with state or local government agency and obtain an employer identification number from Internal Revenue Service(IRS). You should also decide on the business structure you want to put in place whether it is Sole Proprietorship, Partnership or Limited Liability Company.
Legal Considerations
There some legal considerations that every payroll business must put in place, one of such is the issue of contract. Hire a lawyer or attorney to draft out the necessary paperwork or contract. This includes standard contract for you and your client to sign. This contract will contain the rules and policies of your services and also termination procedure if the contract is bridged. As a payroll service provider have a contract that clearly spells out the details of the payroll service you will provide. Your clients should be aware of the costs, how long you will run your payroll, the kind of services you will provide and responsibilities that will be performed by clients.
Obtain a local or state business license. Most countries or cities require business owners to obtain a city business license to do business in that area. If the zoning law does not permit you to do business in that area you may need to obtain a zoning permit. Establish your payroll service business in an area that is full of companies, this will enable you to attract a lot of customers to your business. Do not situate your business in a rural area because they may not need your services, payroll businesses are usually situated in an urban setting. The environment should be very conducive and devoid of noise, do not set up your business in an area full of competitors because they may lure your customers. Make a research about areas in your city; establish your payroll service business in an area that a payroll service business has not been established before.
Marketing
Marketing has to do with informing and showcasing your products or services to people. There are different outlets you can use to market your payroll service business and they are:
- Social Media: one of the ways you can market your payroll service business is through the social media. The social media consist of Face book, Whatsapp, LinkedIn, Twitter and Instagram. Most companies and agencies have social media accounts they use to reach out to their customers. If you have your own social media account, it will be very easy for you to reach out to them. You can send them a message via social media about your payroll service and how it can be very beneficial for a company to outsource its payroll service. You can also keep your friends on social media updated about the services your payroll business offers.
- Billboard: Billboard is a large outdoor advertising found in busy roads, communities or street. It has been advised that you should establish your business in an area that is full of companies or agencies. Design a large billboard and place in the frontage of your business setting where pedestrians can see and easily be attracted to it. Make the design very colourful and attractive so as to leave a great impression in the minds of the reader.
- Business Cards: Business cards are cards that bear information about a company or individual. A business card typically includes business name, contact information such as telephone number, email and address; they also include the logo of the company. Make your business card very colourful also include your Facebook, Twitter and Instagram. Business cards are distributed during formal introductions. You can distribute your business cards to companies around you or even afar, you can also give friends, employees and families your business cards to help you distribute.
- Business Website: In this digital age, every payroll business needs a business website. Launch your own business website to be accessible to your customers. You can write about the services your business provides. One of the benefits of having a business website is that if people should use search engines or Google to search for payroll service providers they will see your website. Your social media friends can also go to your website to read about the kind of payroll service your business offers.
- Referral Marketing: This is a method of promoting products or services through referrals, usually word of mouth. Referral simply means using your clients to lure other potential clients. Referral based customers are better matched and they are likely to interact with people similar to themselves. Current customers are given incentives such as commission, prizes and discounts, these rewards can be used to retain current customers. Referral marketing is very essential for payroll business.It helps you to satisfy your customers and to establish long and lasting relationship with them. It increases the scope and effectiveness of your business, and Referral marketing can lead to future investment for your company.
Why You Should Invest In Payroll Service Business
- It is very profitable: the payroll service business is very profitable because the service is on high demand globally. Many companies outsource their payroll because it reduces stress and costs. Outsourcing payroll allows employers to concentrate on their core business and frees business owners on strategic task that could affect their business.
- It is one of the fastest growing industries: Payroll service business is not just on high demand but the industry has experienced tremendous growth. In 2013, a global report conducted by Ernest and Young discovered that 12 percent of respondents outsourced their payroll to a single provider. The industry has an annual growth of 7.8 percent between 2011and 2016. Day by day many companies are being established and many businesses are expanding, there is a pressing need for a payroll service provider.
- The business has capacity to expand: Payroll business is one of those businesses that grows fast and has capacity to expand; a lot of investors are attracted to this business because it is very profitable. The more employees an organization acquires, the more the payroll service business expands. For example an organization that has 50 employees that use your payroll service, if that organization expands to 100 employees your payroll service business expands automatically.
- A Team of Experts: Payroll service providers are considered to be a team of professionals by companies and agencies and they also believe that payroll service providers can hardly make any error or mistakes. One of the benefits is that payroll service providers have a competent team and reliable team.
Challenges of Payroll Service Business
- The business can be expensive to start: The business can be very expensive to start, a payroll processing software subscription is very expensive to operate, though some subscription can have onetime fee. Some recognized software programs are: Adaptasoft Cyberpay. Polaris Payroll and Paysoft Propay. Training a team of processors can also be very expensive and tedious. In addition, hiring accountants and bankers who have left their jobs can also be very expensive. Starting a payroll business can be very expensive because of the paramount factors involved.
- It can be very tedious if the company’s employees are in various locations: If the company’s employees are on different geographical locations it can be very tedious and complex for the payroll service provider.
