Skip to content

Payroll process risks: How using outdated payroll hurts you


Payroll is a top priority for any business. It’s also a major concern for business leaders looking for ways to increase efficiency within their organizations.

After all, employees expect their paychecks to be right and on time, every time. By the same token, business leaders want payroll to be easy and hassle-free, so they can concentrate on growing their businesses.

But there’s a lot of behind-the-scenes work involved to make the payroll process seamless from start to finish. You need to calculate the payroll every pay period, and figure out federal, state and local taxes and pay them on time. You also need to track voluntary deductions like health insurance and 401(k) contributions, prepare and file quarterly reports, and process w-2s at the end of the year.

And what worked for your company 10, or even five, years ago might not hit the mark now, or keep up with your company’s growth.

So, are your company’s outdated ways of handling payroll holding you back? Here are ways past-their-prime payroll processes can hurt your business.

Compliance risks

It’s challenging to keep up with current tax tables, rules and regulations, especially if you do business in multiple states. Making payroll mistakes is easy, especially if you don’t have much time to devote to learning how to stay in compliance. And those payroll mistakes can be costly.

Consider the recent rollout of pay equity laws across the nation, designed to narrow the gender gap in compensation.

The new laws have implications on how payroll records are kept, with some experts recommending keeping records for at least three years that detail employee wages, job descriptions, and reasoning for compensation amounts. It’s crucial to stay on top of what it takes to stay in compliance to reduce legal liability.

Costs associated with inefficiency

Hanging on to those old-school payroll processing methods often comes at a price.

With paper-based systems, information needs to be transferred multiple times, from timesheets to spreadsheets to final records, and then checked and double checked. When you add in all those human steps, you have more opportunity for error. You also spend time filing and organizing documents — time that you could put to better use.

There’s a very real cost associated with the time your HR person or team spends manually transferring data, checking for (and correcting) errors, and keeping up with paper files.

And think of what can go wrong with a paper check. An employee could get sick and miss picking it up on payday. You could print the checks incorrectly. Or disaster could strike your business. A fire or flood, for example, has the potential to destroy paper checks and records, or prevent your employees from reaching your business to pick them up (or you from sending them out).

With so many affordable, digital payroll solutions available, there’s little reason to use paper methods to track attendance, keep records and pay employees. Increased efficiency, added safety and convenience are big reasons more and more businesses are utilizing payroll processing software.

That’s not to say technology is flawless, however. Your payroll process will still be inefficient and prone to errors if you have disparate digital platforms that don’t seamlessly communicate with one another, or skilled people to power them.

Stymied growth

As your company grows and changes, so should your payroll process. The same processes you used to manage your company in the startup phase, when you only had a handful of employees, won’t fit your needs once it has 50 or 100 employees spread across several states.

We’ve already established that those clunky systems and processes can cost your business time and money, and put you at significant risk of non-compliance issues. But there’s an even bigger problem looming as a result of these more obvious challenges: stymied growth.

When you exhaust critical resources on inefficient ways of doing things – or fixing the mistakes that result from them – you’re limiting your business’s ability to reach its full potential. Instead of moving forward toward your vision for your business, you’ll always be treading water, working like crazy just to keep from sinking.

That’s the difference between tactical and strategic HR. When you make the transformation from working in your business, to working on it, you set your business up for the future growth and success it needs and deserves.

To help ensure continued growth for your business, make sure your payroll process helps streamline your HR operations, rather than hinder them. It’s a good idea to periodically re-evaluate the system you use to pay your employees. What’s working? What’s not? What should you change?

Many growing companies benefit from investing in tools and outside help to manage payroll. There are a variety of payroll practices that can help.

Hiring a bookkeeper or CPA


  • If you already have a bookkeeper or CPA, it’s easy to add payroll to their responsibilities.
  • Convenient to keep multiple financial functions in one place.


  • Costs more than doing it yourself.
  • Mistakes can still happen because there are no checks and balances in place.

Using payroll software


  • Wide variety of programs available on the market.
  • Cost-effective solution for small businesses.
  • You’ll have 24/7 access to your payroll and can calculate it virtually error-free.
  • Cloud-based solutions deliver seamless software upgrades that won’t disrupt business.
  • Good payroll providers offer access to a dedicated payroll consultant, 401(k) plans and compliance assistance.
  • A comprehensive, integrated HR technology platform can facilitate payroll and streamline your HR operations in a single system.


  • There’s a learning curve to mastering software and teaching it to employees.
  • You’ll be in charge of maintenance and software upgrades if you choose an on-premise software solution (versus cloud-based).
  • Quality and level of support vary depending on the vendor.

Using a professional employer organization (PEO)


  • A professional employer organization, or PEO, not only provides payroll services, but also offers a full suite of HR services and access to comprehensive health and retirement benefits.
  • Integrated approach to payroll takes care of most payroll-related tasks, including submitting tax documents, keeping up with payroll tax changes, and handling payroll tax deposits and filings.
  • Cost-effective choice for companies with as few as 10 employees.


  • A more expensive option (but can pay for itself by freeing you and your staff from time-consuming HR-related administrative tasks and allowing you to spend more time growing your business).
  • Some PEO organizations offer more comprehensive services than others.

Thoroughly research your options to make sure you choose the right solution for your business. If you’re in the market for a PEO, you may want to consider a certified professional employer organization (CPEO). The IRS reserves the CPEO designation specifically for PEOs that have voluntarily undergone a rigorous audit of their financial statements and records.*

The takeaway

Payroll is a part of business often taken for granted. But it affects every single person in your organization.

When it’s done wrong, it’s time-consuming and inconsistent. You run the risk of making mistakes when paying your employees and increasing your legal liability. When payroll’s done right, the process is efficient and seamless.

Which approach sounds most like your payroll process?

If payroll is a constant headache, it may be time to tweak what you’re doing now. Effective payroll processes save businesses time and money, which, when reinvested in your company, can dramatically impact your bottom line.

Find out how a PEO can put you on the path to more efficient payroll processes and streamlined HR operations. Download our free e-book, HR Outsourcing: A Step-by-Step Guide to Professional Employer Organizations (PEOs).

*The IRS does not endorse any particular certified professional employer organization. For more information on certified professional employer organizations go to