The decision whether to outsource the payroll function or keep it in house typically comes down to cost, which varies widely depending on the type, size and growth trajectory of a business. While smaller businesses might save money on tangible costs by keeping it in house, factors such as multiple locations, employee benefits, employee turnover and variable compensation (exempt, non-exempt, vacation pay, bonuses, etc.) can increase the operational cost of processing payroll. There are advantages to both outsourced and in-house payroll processing.
Advantages of In-House Payroll
The argument against in-house payroll has always centered on the costs of a dedicated staff person and the hard resources that are required to meet a payroll every week or two weeks. However, many businesses find that the net costs can be lower after factoring in the time that must be spent in communicating with a provider to ensure the data is correct, fixing errors in the payroll and changing the status of employees.
In addition to reducing the time in communicating back and forth with an outsourced payroll provider, data entry is simplified because it is done just once, and its accuracy can be controlled. Also, in-house payroll processes can be integrated with the business’s accounting software, which provides an easier way to sync the financial data for end-of-the-month bookkeeping.
When the payroll function is synced with the accounting system, you can take a more accurate snapshot of your business, so you’ll instantly know if any issues are arising. You’ll have a greater capacity to see into the future as you forecast for growth or changes in your employee count.
Many businesses are concerned about the transfer of highly sensitive data, even with the advancements in cybersecurity. Data breaches are becoming too common, even among large companies. By keeping the data in house, a business can create its own security layers to protect it while having control over its access when it is needed.
Advantages of Outsourcing Payroll
Payroll processing can be a demanding function in a business, requiring specific skills and knowledge that must be obtained by dedicated staff. Any staff turnover in this area can be especially costly.
Third-party providers have access to more methods and the latest technology for payroll processing and payments, including direct deposit. Payroll providers are steeped in experience and expertise with federal and province requirements, so penalties and late fees don’t have to be a concern for the business.
Payroll processing is staff-intensive. By outsourcing the function, your business can allocate valuable staff time and resources to other core functions.
Eliminating the staff function for payroll results in immediate savings and eliminates other costs associated with payroll, such as technology, materials and fees. Even if the cost of outsourcing is equivalent to the cost of payroll processing internally, the business can realize savings through an increased level of operational efficiency.