As your business grows and adds employees, you’ll soon discover that managing payroll takes a lot of time. It can be complicated too, especially if you have employees who work remotely, or your business has employees in multiple locations.

Managing payroll for even a small number of employees means you’re tracking many things at once. You must maintain all the employee data while ensuring you’re compliant with multiple laws and tax regulations, and you have to deal with problems as they arise. One way to address these issues is to hire one or more dedicated employees for the task. Another way is to simply outsource your payroll.

Payroll outsourcing has many advantages and disadvantages: you save time and money, but it requires giving someone else access to your employee data.

Let’s explore these pros and cons in more detail, and then review what to look for to find the best payroll outsourcing partner that fits your company’s specific needs. 

Table of Contents

1. What is payroll outsourcing?
2. What are the benefits of payroll outsourcing?
3. What are the challenges of outsourcing payroll?
4. How to choose a provider
5. How to get started
6. FAQ

What is payroll outsourcing?

Payroll is the process of paying your employees, which entails multiple steps. You must calculate each employee's deductions and contributions, send those deductions to the Canada Revenue Agency (CRA) through your company payroll account, and properly report those deductions.

Outsourcing payroll involves hiring a third party to do all of those payroll duties for you. You might choose to outsource these duties to a team of people who specialize in payroll, or you might select payroll software to automate some or all of the process for you. Each option frees you or your HR department from having to do these activities.

What are the benefits of payroll outsourcing?

Hiring payroll specialists — whether human or software — comes with a variety of benefits. 

Saves time

Outsourcing payroll frees up your time. Instead of having to sort through the ins and outs of payroll remittances and tax filing paperwork, you can simply hand it to a specialist.

Reduces errors

According to EnterpriseAppsToday, in 2023, 25% of employees believed there was an error in their paycheque. By outsourcing these systems to automated software and human experts, your company can greatly reduce the chance of potential errors.

Maintains compliance

Payroll specialists and software pay close attention to compliance and regulation changes. So if Canada Pension Plan (CPP) or Employment Insurance (EI) deduction rates change, they’re prepared to integrate those changes from day one.

If you’re processing payroll manually, you’ll have to take time out of your day to read through the changes, figure out the calculations, and enter them for each employee.

Integrates data

Payroll outsourcing makes it easier to integrate data from other parts of your employment system. You can track vacation benefits and time sheets all together, and not have to re-enter employees’ contract data or personal information.

Provides employee self-service

Your employees will appreciate the ability to access their payroll data in a secure, self-service fashion.

Saves money

Reducing costs is one of the leading reasons small and medium-sized businesses choose to outsource payroll. A payroll analysis by Mordor Intelligence found that Canadian businesses who choose to outsource their payroll typically see an 18% reduction in operational costs.

Each of these benefits is possible because payroll outsourcing offers access to experts. Since payroll is their business, they bring specialized knowledge to the relationship. This allows you to concentrate on your company’s specialized knowledge instead of spending time and effort learning the intricacies of payroll.

What are the challenges of outsourcing payroll?

Nothing is perfect, and there are potential downsides to handing your payroll to a third-party service provider.

Three primary concerns include:

• Trust
• Data security
• Communication

When you hand over critical information to a third party, you must be able to trust in the skills and services they offer. Since the person, team, or software application is not fully under your company’s supervision, you need to ensure you can trust that everything will be taken care of legally, securely, and on time.

As the employer of record (EOR), you are the one who is ultimately responsible for ensuring all CRA regulations are followed, all forms are filed properly, all hours and earnings are fully reported, and all withholdings are calculated properly. That’s why you must fully investigate the firms and services you’re considering before transitioning your in-house systems.

How to choose a provider

So how does outsourcing work? And what exactly should you look for in a payroll outsourcing company? It comes down to asking many questions.

First and foremost, ask what their service provides.

Important features to consider include:

• Electronic pay stubs
• Employee self-service
• Direct deposit
• Compliance management
• Tax remittance
• End-of-year T4 slips
• Administrative reports

Ask about security. How do they ensure your corporate data stays secure in their system?

Ask about your company size. Is your company too big or small for the company or software you want to use? Can they scale as you scale?

Ask about complexities. If your payroll is relatively straightforward, this may not be an issue. If you have complex systems and setups, however, can the payroll system accommodate those? Some complexities might entail handling international employee payments, benefits, and taxes.

Ask how well they know employment laws and regulations. Are they fully up to date with federal and provincial specifics? Do they update forms and systems automatically when new legislation takes effect? If you have international employees, do they have in-house experts for those regions?

Ask about customer support. Do they provide it? Is it by phone, email, video, or something else? What are the support hours? Are you limited to a specific number of requests per month or year?

Ask about additional fees. Is everything you want or need included in your service package, or will you experience cost creep as time goes on?

How to get started

QuickBooks is here to help you succeed by offering the most comprehensive payroll services. Our easy-to-use payroll system is your solution for accuracy and automation so you can focus on running your business.

Once you’ve selected the best outsourced payroll solution for your business, getting started is as easy as asking for integration help. QuickBooks can walk you through the initial setup process — just request a free consultation.