Employee compensation is the biggest expense in most veterinary practices, which makes payroll management a critical function. Besides calculating wages, payroll administrators manage tax withholdings, benefits deductions and garnishments. The job is so fraught with laws and regulations that doing something wrong can subject a practice to fines and other penalties. The U.S. Department of Labor takes the duties so seriously that not depositing payroll taxes in time to meet state and federal deadlines can shut down a business permanently.
Given what’s at stake, should you outsource payroll responsibilities? Probably, but it depends.
In-House Challenges
If an employee of yours uses spreadsheets to manage payroll manually, investing in software is an excellent first step to improve the process and reduce errors. When you run payroll in-house, mistakes often result from misunderstanding what to withhold, such as mandatory payments for payroll and income taxes, and what to deduct, like employee portions of health insurance premiums and retirement programs. Confusion also arises over employer-paid and employee-paid fringe benefits. All those slip-ups can cause worker dissatisfaction and legal issues, especially if a team member is newly eligible for insurance coverage and retirement plan participation or if someone’s withholding amount or time-off accrual is incorrect.
The repercussions can come from federal, state and local governments and from disgruntled employees who file complaints with labor authorities, damaging your practice’s reputation.
Do you know how soon you must present final paychecks to employees you terminate compared with those who resign? I don’t either, but payroll companies do. Given constant changes in labor laws, leaving the details to experts makes sense.
What Are You Willing to Pay?
Cost is a significant factor but shouldn’t be the sole determinant in choosing whether to outsource payroll work. While doing it in-house might seem cheaper, you probably spend more than you realize when you add in the cost of software subscriptions, training, and the salaries of those who handle benefits enrollment forms and other tasks. Savings in time and resources can offset vendor fees.
Here’s an example:
Dr. T recently switched from running payroll in-house to using a service provider. He was reluctant to hire the vendor because he said the work didn’t take him much time, and he thought it was fun. A few months after hiring the provider, Dr. T told me, “Having an outside service do payroll takes a fraction of my time. And because they do all the tax filings, it’s much less for me to worry about.”
In addition to managing paychecks and tax filings, most payroll companies provide W-2s for employees, 1099 forms for contract workers and the year-end reports your tax preparer needs. Most also operate portals where team members can retrieve paystubs and tax forms, review time-off balances, make W-4 tax-withholding changes, and submit address changes.
Besides saving you time, outsourcing can help you avoid the cost of payroll errors, such as fines for late tax payments and penalties for non-compliance. You are still responsible for paying overdue taxes, but an at-fault payroll company will cover penalties or interest charges.
Protecting Your Data
Outsourcing your payroll shifts some of the risk of a data security breach to the vendor. While you might have concerns about sharing sensitive information with a service provider, reputable companies invest heavily in cybersecurity to protect client data. They are well-versed in compliance matters, ensuring that a veterinary practice’s payroll is processed under the latest laws and regulations.
Practices that keep payroll in-house must take extreme care to safeguard data, such as pay rates, birthdates and social security numbers, from prying eyes. You should keep confidential employee information in a locked cabinet or a private, password-protected computer folder. Limit access to the practice owner and employees involved in payroll management.
Compliance and Regulatory Challenges
Staying abreast of ever-changing tax and labor laws is difficult, particularly if employees work in multiple states. Even small practices must deal with the issue if they are close to state lines.
Managing payroll in-house requires continuous training and education, which can be time-consuming and costly. And frankly, it’s not especially interesting if you aren’t a payroll enthusiast.
Outsourcing the work to a specialist puts it in the hands of experts well-versed in all the intricacies. The companies have the resources and know-how to ensure accurate and timely payroll processing.
Offloading Responsibilities
Here are a few tips for contracting with a payroll company:
- Don’t expect the vendor to flex to meet your needs. They face tight deadlines that they can’t control.
- Designate more than one person who can speak to a payroll specialist at the company. Sure, a committed hospital manager can call from an ICU bed (too many have, by the way), but that’s not in anyone’s best interest.
- Reconcile benefits deductions monthly to confirm that your practice and employees pay the correct amounts.
- Even though outside experts are involved, review payroll reports regularly to ensure that team members are paid correctly and that benefits deductions occur. In addition, review paid-time-off balances to confirm the proper crediting of employee absences.
Hiring a payroll company is the best option for most veterinary practices. Yes, it’s another expense, but like with insurance policies, you will welcome the safeguards.
Long-time payroll service providers include companies like ADP, Paychex and QuickBooks. Ask your accountant for a recommendation and affordable options.
PUT THEM TO THE TEST
Before you sign up with a payroll processor, be sure the company can handle a veterinary-specific taxable benefit, like medical care provided to employee pets. Even a large provider might have difficulty managing it correctly.