Outsourcing payroll: A pros and cons guide

Running a business means wearing many hats—from hiring employees to managing payroll. And while your company is your pride and joy, it’s not easy to handle everything on your own.

Did you know companies that outsource payroll can cut operating costs by up to 18%? That’s money back in your pocket and more time to focus on growing your business. As your business grows, outsourcing payroll can be a smart way to lighten your load and focus on the work that matters most.

But how does payroll outsourcing actually work? And is it the right move for your business? Use this guide to explore the pros and cons and see how outsourcing payroll could help you save time, reduce errors, and keep your team happy.

How outsourcing payroll works

Benefits of outsourcing payroll

Disadvantages of outsourcing payroll

Common features to look for in payroll outsourcing services

How to start outsourcing payroll in 4 steps

Why you should choose QuickBooks to be your payroll provider

How outsourcing payroll works

Payroll outsourcing services streamline your payroll processing system. Rather than an in-house payroll or HR professional, team manager, or small business owner handling payroll themselves, a third party takes care of the logistics.

These third parties often automate many aspects of payroll, including:

• Calculating payroll withholdings and deductions
• Depositing employee paychecks for each timesheet
• Compiling payroll reports
• Producing payroll registers

A high-quality payroll outsourcing service provides you with a suite of features for running payroll efficiently. Simple outsourcing options allow you to manage payroll data from a phone or desktop application, while higher-value options allow you to connect directly with expert support. They may also include HR outsourcing features.

Rather than having an in-house team deposit paychecks, calculate tax withholdings, and file your small business taxes, outsourced payroll handles it all behind the scenes. Plus, professional payroll services significantly reduce the chances of errors in your payroll processing.

Benefits of outsourcing payroll

Like with any business decision, you’ll want to know how your business will benefit if you decide to outsource your payroll. Now that you know what outsourcing the payroll process entails, let’s look at the wide range of payroll outsourcing benefits it can provide for you and your business.

Time Savings

Time spent worrying about payroll tax documentation, payroll processing, and more is time you’re not spending elsewhere. As a leader in your business, it’s important to devote your time to the things that matter most. Outsourced payroll services allow for that.

Cost Savings

Hiring someone to work on payroll in-house can be expensive. And if you’re spending time on payroll rather than on other aspects of your business, you could lose money. Outsourcing payroll can be a much more affordable option.

Quick payments

One thing is certain, employees like being paid on time. Outsourced payroll allows you to set up automatic direct deposit so no one’s ever wondering when their pay will come in.

Tax penalty protection

Let’s face it. Taxes can be confusing. And when you’re juggling the responsibilities of a small business owner, it can be easy to let a tax-related error slip under your radar. In some cases, outsourcing your payroll can provide you with tax penalty protection, helping protect you in case of a costly payroll error.

Maintain compliance

Outsourcing of payroll ensures that you maintain compliance as payroll professionals stay on top of any changing regulations or requirements.

Accuracy

Payroll errors can lead to plenty of headaches. Employees may become frustrated and leave your company if you pay them incorrectly or too late. Outsourcing payroll processing helps reduce the chance of errors, especially for companies with a large number of employees.

Fast onboarding

Outsourcing payroll will quickly get new hires on the payroll and ready for their first day on the job before the next pay period.

HR services

Some platforms include a suite of both HR and payroll features, such as time off and insurance management. These can also help decrease costs to your business while streamlining your employee management.

When to consider outsourcing payroll

If your current payroll system leads to frequent mistakes, compliance issues, or wasted time, it may be time to outsource. Payroll errors can cost your business in penalties and lost productivity, and can frustrate employees if paychecks are delayed. Outsourcing helps reduce these risks and gives you more time to focus on growing your business.

Whether you’re looking to save some extra time or are interested in additional HR features, outsourcing your payroll could be the right choice for your small business.

Disadvantages of outsourcing payroll

Most everything has its pros and cons, and outsourcing payroll is no exception. Before diving into whether or not outsourcing payroll is the correct decision for you and your business, look at some of the downsides.

Less oversight

Even though outsourcing payroll can help you save time and money, it also involves giving up direct supervision of the payroll process. If you’d like to automate the payroll process while still having the ability to keep your payroll information in-house, you might consider using payroll software.

Risk of errors

While experienced payroll professionals are less likely to make mistakes than other less experienced individuals, it is still a possibility. And unlike when you do payroll in-house, it may take longer to correct the mistake than if you were handling it yourself.

Unnecessary benefits

Depending on the provider you decide to outsource payroll processing with, you may be paying for additional services your business doesn’t need. This can lead to you spending more money than is necessary.

Delays

Because you’ll have to share employee and wage information with your payroll provider, there is a possibility that there could be lost information throughout the sharing process. If that happens, resolving these issues may take additional time, which could lead to payroll delays.

As with any business decision, it’s up to you to decide whether or not the pros outweigh the cons when looking to improve your current payroll processes.

Common features to look for in payroll outsourcing services

Now that you’ve weighed the pros and cons of outsourcing payroll, let’s break down some common features to keep an eye out for in payroll outsourcing services.

• Payroll automation: To ensure you’re getting as many timesaving benefits as possible, choose a payroll outsourcing service that allows you to automate the payroll process.
• Tax assistance: Choosing a payroll outsourcing service that helps calculate, pay, file, and pay your payroll taxes is a great way to help streamline the payroll tax process, giving you peace of mind that your taxes are filed correctly and on time.
• Payroll reporting: Some payroll outsourcing services offer easily customizable payroll reports that you can use to share important insights and make informed business decisions. This may include payroll deductions, paid time off, workers’ comp, and more. 
• 24/7 customer support: Using an outsourced payroll service can provide you access to 24/7 support from payroll experts, ensuring you can receive timely answers to any payroll questions you may have.
• Time tracking: Some payroll outsourcing services also include time-tracking features that can help you easily monitor how your employees spend their time and gain real-time insights.

Once you find a payroll outsourcing service that best fits your needs, you’ll begin the payroll outsourcing process, further explained below.

How to start outsourcing payroll in 4 steps

Outsourcing payroll is easier than it sounds. Plus, a little effort now will save you tons of hassle down the road. Here are the steps you can take to ensure the transition is seamless.

1. Decide your budget

As with all things in the business world, it’s a good idea to have a budget before committing. The great news is that full-service payroll outsourcing doesn’t have to be expensive. Chances are, it’s a fraction of the cost of the time you might spend on payroll if you’re doing it yourself.

2. Determine what type of payroll service you want

What parts of your payroll would be most helpful to outsource? Is there any aspect of payroll, tax, and employee benefits management that you want to keep in-house? Be sure to answer these questions as you look for the right payroll service provider for your organization.

3. Do your research 

It’s hard to know which payroll processing software is right for your business without doing solid research beforehand. Your research should involve asking questions like the ones listed above, then seeing what each platform offers. 

Some platforms, like QuickBooks, allow you to select from a variety of payroll plans. This gives you flexibility when choosing different levels of service for your organization. That way, you know you’re only paying for services you need.

4. Choose the right payroll service

Once you’ve set a budget, determined what you need, and researched your options, it’s time to choose a payroll provider. When choosing a provider, you want to find one that is quickly and easily integrated with your current payroll process. It’s also important that employees feel secure and confident in their new payroll system.

By following these four steps, you can start reaping the benefits of payroll outsourcing and spend your time focusing on other important aspects of your small business.

Why pick QuickBooks to be your payroll provider

If outsourcing payroll seems like the best next step for your small business, consider using payroll software. With payroll software, you can easily integrate with your current operations, automate your payroll process, and access 24/7 support from payroll experts.

*QuickBooks Online Payroll & Contractor Payments: Money movement services are provided by Intuit Payments Inc., licensed as a Money Transmitter by the New York State Department of Financial Services, subject to eligibility criteria, credit and application approval. For more information about Intuit Payments Inc.’s money transmission licenses, please visit https://www.intuit.com/legal/licenses/payment-licenses/