Payroll: Outsourced or In-House?

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Keeping up with the constant tax changing and labor laws is a challenge, so having an expert handling this task for you can be quite promising.

Payroll is one of the most critical tasks for any organization, it is also and one of the company’s largest expenses.

This task is one that must be completed correctly, on time every time. The accuracy in the payroll could affect employee’s satisfaction and it could also affect your compliance with local, state, and federal regulations. The inadequate control and record-keeping can expose your business to tax fines and penalties.

Explore the Options

Outsourcing is mostly tough to be more suitable for large businesses, but could it be beneficial to small to midsize ones?

It is important to understand how to choose between outsourcing your organization’s payroll and keeping it in-house. To make this important decision, it is necessary to do a narrow research and take the required time to carefully make a deliberation to avoid missteps that cause frustration for employees and employers.

Let’s learn all the benefits of each option, so it gets easier to make a decision on how to manage your payroll to ensure the most efficient results.

In-house Payroll

More than 43% of the companies that have less than 500 employees conduct their payroll with in-house software and resources.

Here are a couple of reasons why they choose this option:

Flexibility: These organizations require more flexibility in their systems for tracking shift differentials, overtime, pay cycles, and other variables.

Long-term savings: Initial costs for systems and equipment to handle payroll are typically higher than with outsourced solutions, but processing in-house will likely have a lower total cost between 2-4 years after the implementation.

Outsourced Payroll

All outsourcing decisions are always a matter of allowing organizations to focus on what they do best, and help your company deliver the best results.

In the payroll world, keeping up with the constant tax changing and labor laws is a challenge, here is where having an expert handling this task for you can sound quite promising.

Here are a couple of reasons why you should consider outsourcing your payroll:

Ensure compliance: Outsourcing partners are specialists and experts in the area of payroll tax and labor law.

Reduce administrative burden: Managing payroll in-house often requires staffing, internal processes, and software/hardware maintenance, but when you outsource your partner will be in charge of keeping the software updated and everything running smoothly for you.

Many companies decide to outsource payroll because they don’t want to handle payroll taxes in-house. You can always find a partner that can provide a hybrid solution. This is a great way to have the best of both worlds:

Outsource tax expertise: While processing payroll in-house, you still have the ability to outsource the remittance of your local, state, and federal payroll taxes. This hybrid solution can make your payroll processing easy and reliable, this simplifies these tax filings as well as year-end processing.

In-house flexibility: With a hybrid solution, you retain the ability to easily access payroll information and make last minute changes if necessary.

Here are some important facts you should consider as you study the options and reflect on the pros and cons of outsourcing your payroll or keeping it In-House:

Accuracy and accountability: Always consider the option that provides greater control with the option to review and correct errors before paychecks are actually issued to employees.

Service consistency: The best option to manage the payroll schedule, and how will absences and vacations affect payroll processing

Workforce variations:  Take into consideration if your business requires specialized payroll knowledge and if this is easy and cost effective to develop and maintain.

Flexibility: Study how often do you have to make last minute changes

Data location: How will payroll data—employees’ personal data including social security numbers, salary information, and banking details—be used, managed, and stored

Compliance: How will sufficient expertise in payroll legislations and labor laws be maintained

Cost: Which payroll solution is the most cost effective for your organization?

If after carefully considering the options, you decide that the in-house option best meets the needs of your organization, you will need to take some extra steps:

First you will need to select a qualified payroll software provider.

You should do your research and find references from companies in the same industry as yours. Once you have narrowed the field, here are seven questions to help you analyze prospective vendors:

  • How are the tax tables updated?
  • How is an accurate and timely payroll process guaranteed?
  • Can the software accommodate a variety of incomes, deductions, taxes, benefits, vacations, and cafeteria plans?
  • Will the software generate and deliver required payroll reports? Does it support customized reports?
  • Can you print prior years’ forms?
  • How will the transition from your current payroll processing be handled?
  • What is the total payroll cost per employee? 

Once you have the software you will use you just need to train the staff and keep them updated about tax laws and changing rates.

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