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Starting a Payroll Business from Home – A Complete Guide

Do you want to start a payroll service online from home? If YES, here is a complete guide to starting a payroll business with NO money and no experience.

Okay, so we have provided you an in-depth sample payroll service business plan template. We also took it further by analyzing and drafting a sample payroll service marketing plan backed up by actionable guerrilla marketing ideas for payroll service businesses. In this article, we will be considering all the requirements for starting a payroll business from home. So put on your entrepreneurial hat and let’s proceed.

Why Start a Payroll Business from Home?

One of the businesses you can begin to look at starting is the payroll service business. This is if you intend becoming an employer of labor in the United States of America, then you are responsible according to the law to ensure that your employees are compensated appropriately for the work they perform. According to the Internal Revenue Service (IRS), as an employer, you must also withhold and pay payroll taxes.

Every company regardless of size that has employees in its employ is advised to use payroll service especially as it helps in improving productivity in the workplace. The aim of a payroll service is to help employers process the payroll of the employees for a fee, so that these employees could focus on other priorities that would ensure that the business succeeds.

Starting a payroll service business can be very lucrative for you as an entrepreneur, if you carry out your research properly.  On the flipside, it can prove problematic if you do not partake in some deep and cool research. The first thing to understand thoroughly about the business is the tax laws guiding the payroll service and also the processes behind a payroll.

If you are going into this business, you should  be aware that you might likely be into services such as; processing federal and state income tax, making pay adjustments, computing time and wages, issuing manual checks, voiding checks, direct deposits, benefits administration, as well as wage garnishments. This means having a thorough knowledge of these services will likely allow you offer more services to your clients than your competitors.

A standard contract is very necessary in this line of business and for this; you would need to get a good attorney who would help you prepare a standard contract. The contract should clearly state the services you hope to offer and what each service entails.

This allows you and your client have a clear understanding on what your services are and the rates to be charged for the service, especially if you are going to be offering more than one service.  If you have employees, then you would need to create an employment contract as well that should protect you and your company while also listing the employees tasks, as well as company policies and guidelines.

Starting a Payroll Business from Home – A Complete Guide

  • Industry Overview

Payroll services businesses are those that handle employee information which includes wages, deduction, hours worked and any other services that are compensation related and ensure that they are all generated to what then becomes an employee paycheck and reports.

This is usually a service that is done on behalf of the employer. This industry is exclusive of the offices of the Certified Public Accountant (CPAs), who are mandated to provide payroll service in addition to other services that they might be offering.

  • Interesting Statistics About the Payroll Business

This payroll service business industry is largely concentrated in the United States of America, as 70% of the industry’s revenue is accounted for by the 50 largest companies, with the four largest companies which deal in paychecks generation, tax filing as well as payroll reports for clients accounting for close to 50% for the whole industry.

Between 2011 and 2016, the industry has grown strongly, posting an annual growth of 7.8%. The revenue in the industry has been largely due to the high rate of employment as well as favorable business conditions for companies. The industry has also seen positive technological changes such as offering cloud-based services that has not only brought in more income for the industry but also attracted more customers as well. The growth in the industry is expected to continue especially as more businesses are now looking to use payroll services.

The United States is the primary market when it comes to payroll services globally. This means that countries that have close proximity to the United States such as Brazil, Canada, Argentina, Mexico and Chile have started adopting the use of payroll services for projects especially in the public sector. Another major market that has a huge growth potential is India, due to its population as well as the expanding number of businesses in the country.

There are about 285,212 payroll services businesses employing about 929,849 people in the United States alone. This number consists of companies that have their location in a single place as well as large scale companies that their location in several places. This industry generates $81 billion annually.

Starting a Payroll Business from Home – Market Feasibility and Research

  • Demographics and Psychographics

The demographic and psychographic composition of those who require the services of a payroll business are numerous and varied. Here is a list of some of them. Businesses in all sectors such as:

  • Finance
  • Insurance
  • construction and real estate
  • Healthcare
  • food and agriculture
  • Manufacturing
  • Retail
  • service based companies
  • public services
  • technology and communications

This also includes businesses that run a partnership, Limited Liability Company (LLC), or corporation legal structure. It also includes businesses who have hired employees to help run the business.

List of Niche Ideas Within the Payroll Service Industry

The aim of a payroll service business is to help an employer generate paychecks for employees by making correct deductions where necessary. However, the payroll service business is not limited to that as businesses in this industry offer more services to their clients with some choosing to specialize in certain areas. Some of the areas of specialization that is available within the payroll service business include;

  • billing services
  •  pay adjustments
  •  processing federal and state income tax
  •  time and wages computation
  •  issuance of manual checks
  •  voiding checks
  •  direct deposits
  •  benefits administration
  •  bookkeeping and compilations services
  • wage garnishments

Each area of specialization comes with different services and so it is easier for larger companies to offer more services than smaller companies. Smaller companies usually stick to one or two services so as to be able to meet clients’ requirements.

The Level of Competition in the Payroll Service Industry

While starting a payroll service business might not be financially difficult, it requires that you possess other factors before you can start operations. The number of payroll services firms in the United States alone attest to the fact that just anyone can start this business if they are determined to.

However, while starting up might be easy, keeping up with competition won’t be so easy especially as new technologies and cloud based offerings are being used as leverage by already established businesses.

It is important that you carefully pick a suitable niche as well as a favorable location before starting this business. This will help you effectively draft our strategies that would allow you compete with already established business. You should also check out the effective strategies that are being used by your competitors, and then adapt it to suit your business.

List of Well – Known Brands in the Payroll Industry

As with other industries, the payroll service business industry has well known brands whose services set them apart from other payroll service businesses. Becoming a well known brand is mostly possible for businesses that have stood the test of time.

Some of the well known brands in the payroll services business industry in the United States and also in other parts of the world are:

  • Ceridian (United States of America)
  • ADP (United States of America)
  • Paychex (United States of America)
  • Insperity (United States of America)

Economic Analysis

If you intend to start a payroll service then you would need to know certain facts which are that while it is easy to enter into the industry, there are stiff regulations before you can start operations in the industry. If you do not have the knowledge required to operate in this industry, especially as regarding the tax laws as well as the processes behind a payroll, then you need not go into the business.

It is also necessary that you carry out other extensive researches as well which include knowing if it is the right time for you to start this kind of business. The demand for a payroll service business is usually linked with the economy and between 2011 and 2016; the strong economy has seen more people getting employed and more businesses seeking the services of a payroll business.

Another necessary evaluation would be on the kind of services you intend to offer. If you are going to start off with a medium or large scale company, you might need to ensure that you offer as many services as possible so that you could compete ably with already established payroll services businesses. If however, you intend to start off on a small scale; your service selection should be determined by the needs of the companies you intend to offer services to in your target area.

Is the Payroll Business Worth Starting from Scratch or is Buying a Franchise Better?

As with any business, the choice of starting from scratch or getting a franchise depends totally on the entrepreneur and his or her objectives for the business. Starting a business from scratch has its benefits, as you not only get to draft strategies for the growth of your firm and changing them where and where necessary, you also get to be in total control of the direction your company is headed. Most entrepreneurs usually prefer to start from the scratch as it enables them know about the business intimately.

Buying a franchise requires making some serious decisions. You need to be sure of the franchise that you are buying, and that the objectives of both your companies align as regards what you intend to achieve. This doesn’t mean that there are no advantages to buying a franchise as you do not need to worry about attracting clients to your payroll service or be concerned in spending too much on strategies that would promote the image of your brand.

Possible Threats and Challenges You Will Face When Starting a Payroll Service Business

As with other businesses, starting a payroll service business will see you facing threats and challenges that might slow the growth of your business or allow the business to fail. Some of the threats and challenges you are likely to face when starting this business include; stiff competition from a well known brand, economic downturn, lack of finances, and use of obsolete technology.

While nothing can be done as regards some threats and challenges, you should however endeavor to change some of the challenges that you can afford to, so that your payroll service business doesn’t fail.

Starting a Payroll Business from Home – Legal Matter

  • Best Legal Entity to Use for a Payroll Service Business

The decision of what legal entity is suitable for your business is a very serious one for any entrepreneur as it affects what your business can and can’t do and how much paperwork you might have to handle. It might be confusing deciding on which to start with especially if you do not have a business or a legal background.

However, this can easily be solved, if you approach an attorney, who would not only educate you on the pros and cons of each legal entity but also guide you into choosing what will eventually be best for you.

Every business especially the payroll service business has legal entity options such as sole proprietorship, partnership, corporations (S or C) or Limited Liability Company (LLC) to choose from. Even though each legal structure has its drawbacks.

If you are starting a payroll service business that will eventually employ people, then you are better off choosing either a corporation or an LLC. More entrepreneurs however prefer the LLC due to a number of advantages that comes with it.

Regardless of what legal entity you decide upon, ensure you have carried out a proper research on the business you are about to venture into so that you fully understand that the needs of the business would suit the structure picked.

Catchy Business Name ideas Suitable for a Payroll Service Business

  • Perfect Payroll Services
  • CashnCheck
  • Pure Payroll Services
  • Greenback Services
  • Payrolls and More

The Best Insurance Needed for a Payroll Service Business

If you intend starting a payroll service business then it is very important that you get insurance as this will cover you from potential lawsuits from clients. However, it must be clear that not all business risks can be covered by insurance policies, which is why a business plan is absolutely necessary as it allows you know what risks you are likely to face and the best ways to cover the risks.

If you aren’t quite sure of what insurance policies to purchase, it is best you meet with a professional insurance broker, who will advise as well as guide you on the best policies for your payroll service. Some of the basic insurance policies that you would need to consider purchasing if you intend starting your own payroll service in the United States of America include;

  • General Liability Insurance
  • Commercial Auto Insurance
  • Workers Compensation Insurance
  • Professional Liability Insurance

Is Intellectual Property Protection Needed for a Payroll Business?

If you are looking to start a payroll service business, then there will be no need to apply for intellectual property protection. If however, you desire to protect your company’s logo, you could apply for an intellectual property protection for just that alone. It is however not considered a priority for payroll service business owners to apply for intellectual property.

Is Professional Certification Needed to Start a Payroll Business from Home?

In running a payroll service business in the United States, it is not compulsory that you get a professional certification. However, to have leverage over your competitors it is advisable to acquire a certification.

Even though it is not totally necessary for you as an entrepreneur to be professionally certified before starting this business, it might be in your best interest to do so especially as the industry is regarded as a closely regulated one, where you are likely to handle sensitive information that includes the finances and privacy of businesses. Due to the sensitive nature of this business, many laws guide it.

List of Legal Documents You Need to Run a Payroll Service Business

Every business requires basic legal documents to be able to run successfully and the payroll business isn’t left out. The basic documents that you would require to run your own business successfully in the United States of America include;

  • Certificate of Incorporation
  • Business Plan
  • Business License
  • Employment Contract
  • Client Contract Documents
  • Insurance Policy
  • Operating Agreement

Writing a Business Plan for Your Payroll Service Business

Even though every business requires a business plan, which depending on the business might be a simple draft or a comprehensive one; for businesses such as payroll service it is absolutely necessary to write out a comprehensive business plan especially as this is a sensitive business. The aim of a writing a business plan is so that you have a clear picture of what you intend to achieve with your payroll service business.

Even though your business plan acts as a guide to you, it is also a document that must show your investors and stakeholders what the business is all about. The business plan is very important because most of the major decisions that you will undertake during the course of running the business is supposed to be embedded inside the business plan.

Writing a business plan for your payroll service business is a serious task that would require careful planning. It is highly recommended that you spend a huge amount of your time carrying out various researches so that you have a well thought out plan of how you intend to run your business.

Most people do not like to write their business plans as they usually feel intimidated by the whole process especially in the area of financials. Others are simply put off by the formality of the whole affair. However, if you intend running a business that will not only generate profit but also compete with new and established competitors then you should consider your business plan as very important.

There are many resources such as templates that are available online that will help you put together a business plan. If you are not sure of what template to use, you can check credible websites such as that of the United States Small Business Administration where there are enough templates that you can use. The other alternative is in hiring a professional business plan writer to write your business plan for you.

The most important parts of any business plan that would require thorough research before being put down in the document is the marketing and finance sections. If you are going to be approach an investor or lending institution with your business plan, these are the areas where they will be majorly interested in.

Cost of starting up the business and operating it as well as how large your target market is, are the key points of your business plan for any investors apart from other basics. This section would show investors if you are serious with your business. Ensure that you use reliable figures that can easily be backed up by verifiable sources and do not just pick figures from the thin air.

Other important components that must be included in your business plan include an executive summary which will describe your company, and also state what products and/or services you intend to offer. Others include your marketing plans, how you intend to run and manage your business. Ensure that the language that your business plan is written in is clear and concise and states the objectives and goals of the business clearly.

A Detailed Cost Analysis for Starting a Payroll Service Business

According to detailed study, the capital requirement for starting a payroll service business is quite cheap. You basically require no huge equipment to operate this business and so your start-up cost depends on so many factors.

If you are going to run a medium or large scale business, your start-up cost is going to be totally different from one who is going to run a small scale payroll business. Also, your legal structure will determine your start-up costs, as a sole proprietor working from home is likely to spend less than a Limited Liability Company.

Some of what you would require to have if you intend to run your payroll service business in the United States of America includes;

  • Incorporation fees would cost $750
  • Insurance policy budget would cost $1,500
  • Amount needed to rent a small office facility for at least one year would cost $20,000
  • Equipping the office with the necessary work equipment – computers, printers, telephones, filing cabinets, safety and security gadgets, furniture would cost $5,000
  • Cost of acquiring payroll service software would cost $5,000
  • Launching an official website would cost $500
  • Marketing and promotions would cost $1,000
  • Additional expenditure for business cards, and signage would cost $500

From the detailed report above, if you intend starting your payroll service business on a small scale in the United States of America, then you would require at least $35,000. If you intend starting your payroll service business on a medium scale in the United States of America, then you should look towards having a start-up capital of at least $70,000.

If however, your intention is to start a large scale payroll service business in the United States of America, then you might need to ensure that you have at least $140,000.

Financing Your Payroll Service Business

Even if your business idea is humanitarian in nature, without finances it is likely to remain to remain just an idea. This goes to show how important finance is when it comes to starting up any kind of business. As an entrepreneur starting a new business, it might be very tough looking for capital for your payroll service business; however, if you are serious about your business, then sourcing for capital should not be so intimidating.

This is where the importance of a business plan comes in. if you own a comprehensive business plan; it boosts your chances of meeting investors who might be interested in your business. A good business plan that is well written is likely to show investors how serious you are with your payroll business.

No investor or lending institution will take you seriously if you approach them without a business plan detailing your intentions of how you intend to make money and also pay back to those who seek to invest in your business. Some of the options that are available to you when it comes to raising the necessary finance to start up your business include;

  • Applying for loan from the bank
  • Sale of personal stocks and properties to raise cash
  • Approaching investors for finance
  • Raising money from business partners
  • Sourcing for loan from wealthy family members and friends

Choosing a Suitable Location for your Payroll Service Business

Choosing a suitable location is very important for every business and should be dependent on what kind of businesses you intend to offer. In offering a payroll service business, it is important that you locate your payroll service business in close proximity to your target market. If you for instance, decide to focus on hospitality, it is imperative that you locate your payroll service business in that area.

One factor that would decide your location also should be the scale of your business. If you are going to start off on a medium or large scale, then you would need to employ people and also ensure that the environment is conducive for those you have employed.

The reason why it is necessary to get a good facility is so that clients visiting might have the impression that your business would be able to handle their documentation properly. Even though some companies require that you carry out payroll in their location, there might be instances, where you would need use your own facility too.

The fact that you must choose a location that is convenient and conducive doesn’t mean you would need to go and pick a location that would drain your finances especially if you are on a tight budget. The key thing is in being moderate especially when you are just starting up your payroll service business.

Another key thing to consider is how secured your location is, especially as you would be handling sensitive information for clients. While your location must be accessible to clients and employees, it shouldn’t be accessible to criminals and cyber thieves.

Starting a Payroll Business from Home – Technical & Manpower Details

The payroll service business is one that doesn’t require a lot of equipment especially as most tasks will be done using software. However, certain equipments can be gotten at fairly used especially if you are starting with a tight budget and are looking to keep your expenses on a minimum. Some of the equipment that will be needed to fully run your payroll service business successfully includes;

  • Computer
  • Phone
  • Printer
  • Fax Machine
  • Filing cabinets
  • Payroll software

If you are starting off as a sole proprietor and are looking to start your payroll service business on a small scale by catering to small businesses and start-ups, then you can totally work from home. If you however want to run a medium or large scale business where you might need to employ staff, then you would need to rent a facility.

When it comes to the number of employees that would be needed to run a medium or large scale payroll service, it varied depending on the objectives of the company and how many niches it intends to specialize in. while one person can effectively run a small scale payroll service, more people would be required to run a medium or large scale payroll service. You would need to employ a Manager, Marketing Executives, Field Staff, Accountant, Consultants, and Front Desk Officer. This is about 9 to 15 people.

The Production Process in a Payroll Service Business

This is a service based business and as such there are no production processes in the payroll service business. The processes in this kind of business depends on what services is being offered by the business and also what the clients demand.

The processes involved in payrolls service business usually includes  collecting and reporting of payroll-related taxes, wage garnishing, computing wages and salaries, making necessary deductions, processing federal and state income tax, making pay adjustments, issuing of manual checks, voiding checks, direct deposits, and benefits administration.

Starting a Payroll Business from Home – The Marketing Plan

  • Marketing ideas and strategies

Marketing strategies is very important for any business that intends to generate income. Strategies often involve the best way to push your product and/or service out in order to gain the attention of clients. You might need to leverage on different networks so as to be able to source for deals that would be of advantage to your payroll service business.

While running a small scale business, you might not need to deploy too many strategies especially if you are working alone so that you would not be overwhelmed by demands. If however, you intend to run a medium or large scale payroll service business, then you would need all the strategies available – conventional and unconventional. Some of the marketing strategies and ideas that can be adopted for your payroll service business include;

  • Ensure you introduce your payroll business to potential clients by sending an introductory letter, contract document and business cards.
  • Advertise your business in relevant business magazines
  • Ensure that you attend business seminars as well as other related seminars that will expose your business to potential clients
  • Ensure that your payroll business is listed in local directories as well as online directories
  • Use the internet to promote your payroll service business
  • Engage in direct marketing
  • Place cold calls and send emails to potential clients

Factors That Will Help You Get the Right Service Pricing for your Payroll Service Business

Getting the right price for your services will be dependent on what services you intend to offer your clients as well as what your competitors are also offering. If you are working from home where most of your overhead expenses will be at a minimum, you should ensure that your price is set within the range of those working at home.

Possible Competitive Strategies for Winning Your Competitors in the Payroll Industry

To survive in the business environment, you would need to be proactive as an entrepreneur and that includes drafting winning strategies that will enable you compete with your competitors. First things, customers might want to look into is the rates. Every business looks to save money and would patronize any business that would enable them save a few bucks. Ensure that your rates are fair to yourself and customer as well.

Another competitive strategy is in the quality of services offered. Customers love a business that goes above and beyond what they offer and so this could be where you have an edge over your competitors. Ensure that you offer only top notch services regardless of the client and service required. Another winning competitive strategy is in ensuring that you offer additional related payroll services.

Possible Ways to Increase Client Retention for your Payroll Service Business

Every serious entrepreneur knows that customer retention is a serious task and that it is far easier to retain customers than to attract them cost-wise. One thing customers want is that the business the patronize delivers excellent services with little hitches.

This means they do not want to worry about you delivering poor services especially when it comes to payrolls, which is regarded as a very sensitive business. Asides excellent services, customers want to be sure that their data with you is safe.

Another way you can increase customer retention for your payroll service business is to ensure that you keep in touch with your customer by letting them know what ways you are improving your services to them and also offering special discounts from time to time.

Strategies to Boost your Brand Awareness and Create a Corporate identity for your Payroll Service Business

If you intend to boost your brand awareness and also create a corporate identity for your payroll service business, then you would need to create strategies that will help you do so. Creating such strategies is a time consuming affair and so you might need to hire experts who would help you achieve this aim.

Some of the strategies that you can use in boosting the awareness of your brand as well as creating a corporate identity for your payroll service business include;

  • Making use of your website to promote your payroll service business
  • Advertising your payroll service business in relevant business magazines and newspapers
  • Making use of professional social media platforms such as LinkedIn, Twitter and Facebook to promote your payroll service business
  • Writing informative articles and sending to forums and blogs
  • Ensuring that your payroll service business is listed in local and online directories
  • Attending business seminars and conferences and networking with as many people as possible

Creating a Suppliers/Distribution Network for your Payroll Service

This is a service based business and as such there are no distributors as with a products based kind of business. However, one can refer to customers as suppliers.

Just like any regular healthy business, you would need to be in a good relationship with your suppliers (customers) if you intend for your business to have a healthy bottom line. Customers can help refer your business to other potential customers while also giving you tips on how you can serve them better. It is highly beneficial for you to be in a good relationship with them.

Tips for Running a Payroll Service Business Successfully

A Payroll service business typically handle employee information which includes wages, deduction, hours worked and any other services that are compensation related and ensures that the data are generated to what then becomes the employee paycheck and reports.

If you intend to run this business successfully, you must ensure that you deploy the latest technology in not only providing the required service for your client but in also storing their information as well. Ensure that you conduct background checks on your employees regularly so that no unpleasant surprises spring up at you. This also means that you have a back-up plan so that work does not stop if anything goes wrong.

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