The economic meltdown has many companies evaluating methods for preparing payroll. Some are looking anew at whether to bring the administrative nightmare of payroll processing in house where they can avoid the fees associated with an outsourced payroll service. Most of these thoughts of saving money discount the many areas that outsourced payroll actually save money such as removing extra time that internal staff spend administering payroll records.

Handling the processing nightmare of payroll consumes far more time and effort than the typical company admits. Employees lose W-2 forms and expect accounting staff to drop all tasks while a new copy is created. Inaccurate or late payroll tax deposits result in significant late fees and penalties.

If you're still thinking that doing payroll yourself is a savings, consider these many benefits an online payroll service offers:

Employee Self-Service. Maintaining employee data (names, addresses, deductions, exemptions, extra withholding) is all quite manageable when the numbers of employees are low.

What happens when you're faced one day with 25, 50 or more than 100 employees?

The time it takes to manually update the sporadic request to change data is easy to underestimate as your numbers of employees rise above "a handful."

And because employee data is confidential, you likely only have one or two people in the office who are able to make these changes. This further increases the burden on your accounting staff. What if, instead, your employees were able to maintain their own payroll data? Address changes, exemptions and even deductions can typically all be self-maintained when the payroll has been moved to an online processing service.

Even the best accounting packages usually require a third-party solution (Read: "more money and complexity) to allow for employee self-service. While it's easy to overcome this administrative problem by hiring another person to manage the data entry, why add to fixed overhead when you can offload this administrative task of managing standard employee data to the workers themselves? Most of your employees are already processing financial transactions online so this added task of logging in and maintaining their payroll data will be more welcomed by them than you might thing.

Automatic tax filing with guarantees against penalties. Even the best payroll staff can make mistakes with the confusing array of tax deposit rules. Nearly every payroll processing company protects you against costly tax deposit penalties and interest by guaranteeing the timeliness of your online tax payments. So long as you have the funds available you may expect the processors to guarantee a penalty- free deposit will be made. If there's a mistake in computation or timeliness, the processor pays and not your company.

Yet another confusing area of taxation is the myriad of state (and local) tax rules. Nearly all payroll processing companies are experts in the area of establishing the proper tax status for each individual state. One of the worst things that can happen is to collect the wrong (amount or type) of payroll tax and not catch it until the year end when W-2 forms are being prepared and an eagle-eyed employee brings the mistake to your attention.

Off-site backup of data. Could storing your data off site be a security hazard? Absolutely! Is access to data via the Internet commonplace? Probably more so than you think. Even if you don't access your credit card or bank account data personally via the Internet, all of that data is still available. The numbers of problems with data security through online intrusion are insanely small compared to the many millions of people who access online financial data every minute of every day.

Think about the positive aspect of off-site data storage and backup. If your company were to suffer a fire or other natural disaster you'd still be able to access this data even if you didn't have to make payroll for another week or so. Quick access to historical reports and prior W-2s from nearly any Internet-connected PC is a great time saver.

There's no absolute guarantee that data won't (or can't) be compromised online. However when you weigh the risk of compromise against the time and cost savings, this type of storage makes economic and business sense. The security risks are minimal and all payroll processors realize the vital importance of having a secure environment and are constantly on guard against electronic intruders.

Historical retrieval of W-2s. If there is one sure thing in the world of payroll processing it's that employees will lose their W-2 forms. The other certainty is that they want copies of the same W-2 form within 10 minutes of asking. Under older methods that often means a trip to storage to dig out the years-old forms. Now the employee can be directed to a secure online portal where their own data is confidentially displayed and they can re-print a W-2 from any year that they've worked for your company.

Many sites also allow for computation of expected wages for the year as well as assistance with creating a W-4 that includes enough withholding allowances. The availability of these features removes pure administrative cost from your company. Again, employees are used to this type of online self-service in their everyday financial life. There's no reason payroll can't be self-service for them as well.

Human resources capabilities at a fraction of the cost. Several online services also offer light human resources assistance. They produce posters and required filings that can be generated in PDF format and then posted online. This allows you to meet regulatory requirements. Many companies ignore these regulatory requirements until a disgruntled employee quits and complains to the government about their former employer's failure to post the required disclosures.

The cost of posting the correct notices is tiny. In most instances you can obtain the posters for free from the government. What's saved here then? Your time in analyzing which posters are needed, how frequently to update them and time spent obtaining them. Online payroll processors often provide these with amazing one -click access to download and print. Instant compliance!

Archiving of historical data. If you think that storing payroll records online is insecure, compare that process to how you're doing it now. I've seen more than my share of companies that "archive" payroll records by putting them on the floor in a damp basement inside a cardboard box. In the case of fire, prying eyes or flood, those records are quickly compromised.

Online processors archive as much data as you've processed with them. This also makes sharing of records with your CPA or accountant much faster because in many instances a separate login for your financial professional(s) can be generated granting them access to the online records.

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