The Disadvantages of Payroll Systems

1. Employers have to ensure their employees and taxes are paid in an accurate
and timely manner. Consequently, they use a payroll system that best suits their
needs. Although payroll systems can provide payroll services that are
advantageous to the employer and his employees, they also have disadvantages.

Outsourced System

2. When an employer outsources his payroll, he assigns a significant amount of

the payroll processing tasks to a payroll supplier, decreasing the workload of
his payroll department. This is an increasing popular method of payroll
processing among employers, particularly among small businesses that lack an
in-house payroll staff.

The disadvantages of this system include the improbability of contacting a

payroll professional immediately. If the payroll company is understaffed and
has an abundance of clients, it may become difficult to reach someone when
you need it immediately such as when paycheck discrepancies arise.

Because the payroll company is located off-site, it is difficult to always know

what's going on with your payroll until the actual pay date arrives. The payroll
company is also responsible for paying your taxes to the government. If taxes
are being paid late or incorrectly, unless you have a payroll administrator
working on-site to stay abreast of tax filings, you may not know it in time to
avoid penalties from the government.

In-House Computerized System

3. An in-house computerized payroll system is equally as popular as an

outsourced system. The employer simply purchases the payroll software and
hires an in-house payroll staff to do the payroll processing.

The disadvantages of this system include the employer having to pay salary and
benefits to his payroll staff, as opposed to paying a small fee to outsource his
payroll. The in-house computerized payroll staff generally has additional tasks
such as quarterly and annual tax filings, W2 processing, direct deposits and
payroll database maintenance. When glitches in the system occur, the payroll
 staff has to work overtime to help solve the problem, which can be costly to the
employer.

The stress level on the payroll staff can be considerable when payroll issues
occur. Employees can approach the payroll person directly as opposed to
having to rely on their superior to contact the off-site payroll supplier.

In-House Manual System

4. Although in-house manual payroll systems are becoming increasingly rare,

some small companies still use them. The main disadvantage of this system is
that everything is done by hand. The payroll personnel must add all the hours
stated on the employee timesheets using a calculator. Then it must verify the
calculations. Thereafter, it has to determine the wages by hand and use the IRS
withholding tax tables to determine the amount of taxes to withhold and pay.
Check printing is done manually on a typewriter and all payroll errors are
manually adjusted as well. The room for error with this payroll system is great;
correcting these errors is an equally painstaking task.