Pros and Cons of Outsourcing Payroll for Childcare Providers

As a daycare or preschool director, supporting the young children in your care is a top priority. However, it’s equally important to consider how you support your educators and staff working at your center, including managing various aspects of employee payroll and HR administration like providing and tracking time off and ensuring employees are paid correctly and on time. 

While some businesses may opt to handle payroll internally, either by personally managing it or by hiring a dedicated human resources administrator or team, there can also be benefits to outsourcing payroll to a third-party service. Both options can work for childcare centers, but each has distinct advantages and disadvantages. Continue reading to learn more.

How does payroll work? 

Payroll is the process of calculating wage earnings for employees over a set period, withholding deductions, filing payroll taxes, and delivering payments to your employees. This can be done either manually, using a payroll management software to help you automate some tasks, or through a third-party service. 

If you opt for a manual payroll process, you’ll need to collect and organize your payroll files to accurately calculate and allocate funds and file the appropriate taxes. But, once you have a system in place, it’s a great option for many small childcare programs, especially ones with only a few employees.  

Childcare providers who use a third-party payroll provider can ensure that employee paychecks are accurate and reflect the necessary deductions, such as taxes, retirement contributions, and healthcare benefits, without collecting those documents themselves. But, a third-party provider can be costly. Let’s dive deeper into these advantages and disadvantages.

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Benefits of outsourcing payroll

Using a third-party payroll service for your childcare business can reduce extra administrative and compliance related work, helping to keep things running smoothly for you and your staff. 

Save time

Small business owners report spending almost 5 hours per pay period processing their payroll taxes manually. Many third-party payroll providers automate the process from time capture to paychecks by digitally capturing when employees clock in and out on the system and when they request or take time off.

The systems can then calculate payroll amounts against employees’ W-4 information to ensure tax compliance and save your internal team valuable time by freeing them from dealing with complicated spreadsheets of manual calculations.

Reduce costly errors

Outsourcing your payroll not only saves you valuable time but can also help you avoid costly errors that often happen when trying to manage payroll in-house. Things like misclassifying employees, wrong tax withholdings, or late tax submissions can cause problems and hurt employee trust.

A good payroll service provider knows all about the latest tax laws and payroll rules, making sure everything is done right. By letting the pros handle payroll, you can focus on nurturing young minds instead of stressing about financial details that could cause big setbacks if not managed properly.

Ensure compliance

With a payroll provider, it’s easier to ensure the accuracy of your payroll reports and that you are withholding and paying the correct taxes during each payroll period. Your employment documents, including tax forms, background checks, necessary medical records, and more, can also be tracked and stored in one central location. 

Improve payment flexibility

As your childcare center grows, so will your staff. And different employees may prefer or need alternative payment methods, like receiving paper checks versus direct deposits or having their paychecks divided across multiple bank accounts. Outsourcing your payroll gives you the flexibility to provide your staff with the payment options that work best for them. 

Manage staffing changes

Whether you are hiring new employees or having to make the tough call to lay off or terminate a staff member, a third-party payroll provider can ensure that you store the necessary paperwork that will keep you compliant throughout the entire process. If you are looking for other tools to help you record important staff and child information, brightwheel’s center management tool can streamline your record keeping and reporting as your business grows. 

Disadvantages of outsourcing payroll

While outsourcing payroll offers many benefits for childcare centers, it may not be the right solution for every business. If you are considering using a third-party payroll provider, consider these potential hurdles before making your decision. 

Cost

Though third-party payroll providers can save you money in the long run, there are upfront costs to consider when outsourcing this work. Many payroll services require a base price ranging from $10 to $85 per employee per month and charge additional fees for special integrations or added features. It’s important to determine whether the costs of outsourcing your payroll make financial sense for your business and shop around to find the best provider for you. 

Implementation challenges

Implementing a new payroll system requires time and collaboration across all departments in your center to gather necessary information and train staff on using the new system. The good news is that most payroll and HR providers understand the need for a fast and smooth implementation and will work with you to ensure that your team is up-to-speed quickly and efficiently. 

Inability to control your data

Another concern when using a third-party payroll solution is data security, as you’re entrusting sensitive employee information to a third-party provider, reducing your direct control over its protection. This increases the risk of data breaches and unauthorized access, potentially leading to legal and reputational consequences. This also hinders your ability to customize your data and make quick corrections, which may lead to errors in deductions or take-home pay.

Data portability issues

Data portability, or the ability to transfer data from one system to another, is another concern when considering outsourcing payroll. One of the main disadvantages is an increased chance of data loss, corruption, or unauthorized access during the transfer process, potentially compromising employee privacy. It can also lead to delays when trying to process your payroll, resulting in late paychecks for your employees. 

Some things will be out of your hands

If your payroll provider fails to pay business taxes or employee salaries on time, you will still be the one held responsible for these failed payments. As your business grows, it can be hard to trust an outside vendor with these crucial responsibilities. Check with any payroll provider you are considering to ensure that they offer a compliance guarantee. This will require them to take responsibility if you are assessed a tax penalty due to any errors made by them on your behalf. 

Childcare and payroll software

Childcare management software that has a robust payroll feature can be an effective alternative to manual processes or outsourcing to a third-party provider. With a tool like brightwheel payroll powered by Gusto, your staff onboarding and management, time tracking, and payroll processing is more intuitive and efficient. 

This easy-to-use payroll solution is located in the same all-in-one childcare and preschool platform where you access billing, messaging, lesson planning, and more. Automate tax filings, centralize cash flow reporting, manage timecards, and run payroll with confidence.

Final thoughts

There are many factors to consider when determining whether to outsource payroll for your childcare business. While you may find it easier and more cost-effective to manage your payroll internally during the early years, hiring a payroll and HR service can help you save time and money as your business grows.

Brightwheel is the complete solution for early education providers, enabling you to streamline your center’s operations and build a stand-out reputation. Brightwheel connects the most critical aspects of running your center—including sign in and out, parent communications, tuition billing, and licensing and compliance—in one easy-to-use tool, along with providing best-in-class customer support and coaching. Brightwheel is trusted by thousands of early education centers and millions of parents. Learn more at mybrightwheel.com.