Outsourcing your payroll can provide your nonprofit with a number of important benefits:

Save time
Using an outsourced payroll solution is typically more efficient for a nonprofit than processing payroll internally. Leaving payroll to experts frees up hours that you can devote to other important parts of your organization. Whether it is your time, staff time, or a combination, chances are the hours could be better spent researching funding opportunities, improving community outreach, fine-tuning business operations or launching a public service. Among the areas where outsourcing will save time are:

• Processing payroll
• Cutting and distributing paychecks
• Calculating and paying withholding and employment taxes
• Preparing and distributing W-2s and 1099s at year-end
• Handling employee payroll inquiries

Save money
Many nonprofit managers underestimate the cost of processing payroll internally by failing to account for all hours spent and resources allocated to pay employees and maintain payroll paperwork. A thorough cost assessment usually proves that a nonprofit saves money by outsourcing the processing, tracking and filing of payroll documents. To assess your own internal payroll costs, consider:

• How much the time spent is actually worth: consider the cost of your time and the time of anyone who processes or “touches” payroll? Often, many people in a small company are involved in the various parts of payroll processing.
• What savings would outsourcing provide: since an outside provider can handle all the responsibilities involved in managing payroll and answering employee questions, a nonprofit can often eliminate or reallocate an internal payroll resource?

Avoid penalties
Calculating federal, state, and local employment taxes and filing payroll-related tax paperwork can be more than just a hassle. If it’s done incorrectly, your nonprofit may face penalties and even interest on money owed since the mistake was made. In fact, it is estimated that one in three nonprofits receive a tax penalty costing over $800 each year. Outsourcing payroll does away with the risk of many of these costs and hassles because:

• An outsourced payroll provider calculates payroll taxes, based on its expertise and close tracking of regulation changes
• Monthly or quarterly employment tax reports are managed by the payroll service, ensuring they are submitted correctly and on time
• Payroll providers may assume penalties that come as a result of incorrect tax calculations
• End-of-year paperwork — such as W-2s and 1099s — are handled directly by the payroll provider, so they are sent out on time