Small Business - Payroll Myself or Use Third Party

[Crazydude]

For any tax pros or business owners out there -

I have a small business I run with my wife, and we just hired our first employee. I will be registering it as an LLC later this month and I'm looking into payroll options. After getting this set up, I will now have to be concerned with tax withholding for employees as well as compliance and other issues. I'm debating whether or not to use a service like Paychex or Gusto, or just attempt it all myself. Both services seem reasonably priced ($40 - $70 p/ month). However, since it's only 1 employee it may not be too much effort.

My priority here is saving time, so I'm strongly leaning towards Gusto or Paychex. I did want to solicit some feedback first though. It doesn't seem to difficult to calculate withholdings and to get up to date with business compliance issues (posters, etc.). So I'm wondering what others are doing and if you're using any 3rd party services.

Thanks!

[SeattleCPA]

I say this as a CPA who helps clients answer this question all the time... I think you outsource this work to someone else. Like Gusto. Or Paychex.

By outsourcing, you'll avoid mistakes that create penalties or extended discussions with IRS, Social Security Administration and state payroll tax agencies. And then you'll also probably be able to do the 'rest' of your accounting yourself.

We did a longer post arguing you should outsource payroll here, if you're interested: http://evergreensmallbusiness.com/why-small-businesses-should-outsource-payroll/

But seriously, you want to have someone do this. (BTW, we're a CPA firm and though we can do and do do payroll for clients, we outsource our own payroll because it's easier.)

[CareCPA]

Agree with SeattleCPA above. The penalties for messing up one tiny aspect can be huge. Unless you are extremely confident in your ability to do it perfectly, I would outsource.
I say this as another CPA who would not do his own payroll (if I had payroll to do...).

[SeattleCPA]

I say this as another CPA who would not do his own payroll (if I had payroll to do...).

Okay, first, LOL on FrugalGrad's excellent comment... Second, seriously, you've got the CPAs saying they would want to outsource payroll... that should tell you something.

[With This Herring]

Thirded by another CPA.  OldFirm did payroll for a few clients, but outsourced its own.  The big providers have massive economies of scale and a hundred sets of eyes out for new payroll rules.

When you have a payroll provider, make sure you send your payroll rep a copy of every company-specific notice you receive from the government.  For example, our state will send you a letter each year stating your new rate for State Unemployment Insurance, based on your past claims history and other factors.  You would need to make sure that your payroll company rep gets a copy ASAP so that the amount they collect from you and remit to the state can be accurate.

If you are unfamiliar with recording payroll (ridiculous made-up numbers used)
Your payroll company will probably remove cash from your checking account in multiple chunks each week.  It will be something like:
PRCOMPANY Taxes      $101.82
PRCOMPANY Taxes      $105.01
PRCOMPANY Payroll     $378.47

When you are entering this payroll in your bookkeeping system, do not just enter those amounts as wages and taxes.
Bad:

Payroll taxes           $101.82
Checking                             $101.82

Payroll taxes           $105.01
Checking                             $105.01

Payroll wages           $378.47
Checking                             $378.47

You should be entering the gross wages and the various deductions from wages to reach the net amounts paid.
ER = employer
EE = employee
Good:

ACCOUNT	DEBITS	CREDITS
Expense - Gross wages	$1,000.00
Expense - PR tax – ER Medicare	$14.50
Expense - PR tax – ER Soc Sec	$62.00
Expense - PR tax – ER FUTA	$6.00
Expense - PR tax – ER SUI	$4.00
Expense - Disability insurance (credit given to employers in NYS, sort of employees' contributions to a portion of DBL insurance)		$1.20
Liability - EE 401(k) withholdings (assuming amount is to be remitted separately by employer or withdrawn by PR company later)		$500.00
Checking (employee net paycheck amount)		$378.47
Checking (part of ER and EE taxes)		$105.01
Checking (rest of ER and EE taxes)		$101.82
.	___________	___________
Debits and credits totals should match	$1,086.50	$1,086.50

[Crazydude]

Wow thanks everyone for the input! My decision has been made, outsourcing for sure. With what you get for how little you pay it's basically a steal.