Why do organizations outsource payroll?
When you have a small number of employees, it’s relatively simple to manage payroll in-house. However, when businesses expand, in-house payroll professionals might struggle to keep up with the increasingly complex processes.
This is one of the reasons businesses turn to outsourced payroll (or managed payroll) experts who can help them with things like:
- Meeting their payroll legislation and compliance responsibilities
- Ensuring their employees are paid the right amount on time
- Protecting employee data
Outsourcing payroll also frees up internal teams, so they can better use their skills in other areas of the business.
What’s the difference between in-house and outsourced payroll?
In-house payroll is carried out internally, often by a finance or HR team. They handle all processes and manage everything, from ensuring employees are paid on time to answering individual queries.
Unless an organization has a dedicated payroll team in-house, staff responsible for running payroll will often have to balance this with their other responsibilities.
Outsourced payroll occurs when an organization hires an external provider to carry out all payroll-related duties. The organization retains ultimate control over its payroll and in some cases, can use software to monitor progress.
Featured Guide
Outsourced payroll: is it right for your organization?
Payroll is fast-paced and forever-changing, so having an expert take care of it can, in many cases, be a great option.
Download our guide to find out:
- The benefits of outsourcing payroll
- The right time to outsource
- How to save money and time through payroll outsourcing
- Reasons to change your payroll provider
- How to outsource payroll
Can managed payroll save your organization money?
Outsourcing payroll management can offer more than peace of mind; it can save you money and add value to the business. Here’s how:
- When you outsource payroll management, they pay your employees on time, every time, reducing the risk of late payment penalties
- By working with payroll specialists, you will have more time to devote to core business activities that drive success and productivity
- Guaranteed payroll compliance means you can hire from a wider talent pool, including workers in states like California, which have complex payroll legislation
What are the benefits of outsourced payroll?
Payroll outsourcing can be a game changer for many businesses. In addition to cost-saving benefits, your business stands to gain a lot from outsourcing payroll.
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Accurate, on-time payments
Outsourcing payroll is a smart move for any business, as it ensures that payday goes smoothly for everyone involved.
Alongside having a serious impact on your people and their livelihoods, late or inaccurate payments can damage your company’s reputation and seriously affect staff morale. With payroll outsourcing, you can rest easy knowing your employees will always receive their expected salaries.
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Facilitates business growth
Companies that outsource payroll find they have more time to grow their business.
The payroll process can be very time-consuming, particularly if staff are juggling payroll alongside other responsibilities. If staff are already stretched, payroll-related tasks that add to their existing workload can lead to stress and could compromise wellbeing and productivity.
By outsourcing payroll, your staff will be able to focus on their actual work, which might include developing the business and managing key projects.
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Ensures compliance with state and federal regulations
Outsourced payroll companies calculate the correct tax amount for each and every pay slip, complying with American federal, local, and state regulations.
Their knowledge means you don’t have to worry about ensuring your payroll is compliant with national and state-wide legislation the payroll experts do it for you.
Outsourcing providers stay on top of the latest legislation , with ongoing training for staff and automatic software updates. This ensures compliance even if your business expands into a new state or enters the global market.
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Superior data security measures
Secure payroll management is essential for all businesses. Payroll outsourcing technology is typically more advanced, with superior security measures, so all your employee data will be securely managed.
Your payroll partners will likely use secure cloud-based servers. This means your business is better protected against threats and cyberattacks.
Frequently Asked Questions (FAQs)
Interested in learning more about payroll outsourcing and how it might work with your business? Here are some frequently asked questions to help you build out your knowledge.
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In some ways, there’s no difference between outsourcing your payroll and using a managed payroll service; these terms are often used interchangeably.
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Employment regulations and legislation are always changing, and keeping up with every legal update can be tough. When you want to expand into different states or even enter global markets, you’ll need to jump through more and more hoops to maintain compliance.
Managed payroll experts could be your answer, as they can ensure regulatory compliance when calculating:
- Minimum wage
- Overtime
- Record keeping
- Pay frequency
- Payroll taxes
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Yes. When you outsource your payroll, part of their service involves submitting your quarterly tax returns to the IRS on time. However, you’ll still have the final say; managed payroll providers still require you to review and sign off reports and payments.
Outsourced payroll services can help ensure your business doesn’t incur fines for submitting forms late. If you delay your Form 941 submission for one employee by just one day, you will have to pay a 5% fine on the total amount due. The longer the delay, the greater the fine!
Managed payroll providers submit documents such as Form 941 and Form 944 in the timescales required by the IRS, reducing the risk of financial penalties due to inaccuracies and lateness.
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When you first partner with an external provider, you might worry about “losing control” of an essential function of your business.
The reality is quite the opposite. While outsourced payroll services help you run your payroll, you still have ultimate authority and ownership. For example, your payroll provider will require your sign-off before anyone gets paid.
Once everything’s set up and running smoothly, you may well feel in more control than ever, as you’re free to focus on your business now payroll is being handled on a day-to-day basis.
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There are many reasons for a business to switch its managed payroll provider. They could include:
- Delays and errors in payroll processing
- Hidden costs or unexpected charges
- You’ve lost confidence in your provider
- Lack of support and communication
- Limited payroll functions
If you’re considering looking for another provider, prepare questions based on your pain points. When you’re exploring the market, look out for providers who are open to discussing their approach, expertise, pricing structures, and support.
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When you make the decision to outsource your payroll, develop a list of questions that you can use when whittling down your shortlist. Here are some suggestions:
- What is their experience?
- Do they work with smaller businesses, global players, or both?
- Do they understand what you need?
- Do they offer the kind of specialist payroll expertise you may need (e.g. paying out-of-state staff with differing legislation)?
- Do they have a clear payroll outsourcing price structure?
- What is their implementation process?
- Do you get pre and post-implementation support?
- Do they offer additional services, such as customized reporting?
Trusting a third-party to manage your payroll requires faith in their ability. If you’re not satisfied with their answers, they aren’t the right partner for you.
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