In-House Vs. Outsourced Payroll: What’s the Difference?

By Adam Walters | 01/17/2024 | 4 min read

Payroll and labor costs are often the largest investment a business makes. For many companies, payroll can be as much as 70% of their total business costs. Not only is it the most expensive part of companies, but it also plays a significant role in talent retention. Employees start looking for a new job if even one paycheck is late or missed. If a mistake happens a second time, the number of employees jumps to 49% of employees who start a new job search.

Everyone expects payroll to be processed on time with 100% accuracy, but most don’t know about the stress of juggling deadlines and keeping up with ever-evolving legislation. Some companies use an in-house solution, while others have opted for an outsourced offering. Both options have unique pros and cons that can affect your company and your employees. Here is your guide to learning more about in-house and outsourced payrolls and which is the best for your business.

In-House Payroll

In-house payroll is the traditional view of how payroll should be managed.

Your internal accounting department is responsible for all aspects of payroll. Employees with any questions or problems with their payroll can speak directly to the accounting department and get personalized assistance.

If you think about the TV show “The Office,” the character Angela is their in-house payroll for their branch. She is responsible for ensuring that all the other characters get their paychecks on time, that commission bonuses are tracked, and that they are done correctly every pay period.

Pros of In-House Payroll

The biggest benefit of in-house payroll is that it provides direct control over all aspects of the payroll process. Some accountants and payroll professionals prefer this because they can completely customize their payroll solutions.

Finally, depending on the existing talent of your employees, in-house payroll can be a more efficient solution to your payroll needs. If you already have a team that is great at payroll and tax calculations and are not feeling overworked or burnt out, keeping your payroll in-house helps you get the most out of the resources you already have.

Cons of In-House Payroll

Payroll is exhaustive work that never ends. Every pay period, your in-house team is expected to perform perfectly, creating a high-stress, high-anxiety environment for your employees, and those expectations are constant.

In-house payroll employees are often overworked and overstressed because they never receive a break. Once one payroll is processed, it’s time to start over again and prepare for the next deadline. Additionally, they are responsible for being accountants and becoming a customer service department for handling any complaints or issues everyone else has while also managing and maintaining payroll software and processes.

If you have a smaller accounting team where one person is responsible for payroll and AP and/or AR, there’s a good chance they are stretched too thin with too many responsibilities.

Outsourced Payroll

Outsourced payroll is when your company uses an external payroll provider to manage payroll. You still provide the raw data (hours worked, rates of pay, and employee details), and the outsourced payroll service handles everything else. They are responsible for calculating the pay, deducting taxes, ensuring checks are printed or deposited on time, and ensuring everything is done following all legal requirements.

Payroll outsourcing services cover the payroll process and is responsible for resolving all payroll questions or concerns. If there are any issues like a late or incorrect payment, the outsourced provider is responsible for sorting that issue out.

Pros of Outsourced Payroll

The largest benefit of outsourced payroll is that you ensure payroll is done correctly and on time without spending valuable internal resources. Outsourcing helps you save time, minimize payroll errors, and maintain compliance.

Because outsourced payroll providers are teams of accountants and payroll professionals, when you do have a question or problem, you have an entire team ready to help.

Cons of Outsourced Payroll

Outsourced payroll is not owned or managed by you, which means you have no control over how they manage their internal processes. For some companies, it’s relaxing to give up that level of control, but for some owners and managers, it can become unsettling not to have the final say over such a vital process of their business.

IRIS Has the Right Solution for You

Whether you’re looking for an in-house solution or an outsourced payroll provider, IRIS has a range of professional-grade payroll solutions ready to provide you with the tools and resources you need.