A woman focuses on growing her business after outsourcing payroll.

Outsourcing payroll: A pros and cons guide

What is payroll outsourcing?

Payroll outsourcing is the use of a third party to help handle the administration of your company’s payroll.

While building your business, you’ve probably had your hand in everything, from hiring employees to running payroll. And while your business may be your pride and joy, it can still be tough to do everything on your own.

To help keep up with your growing business, you might consider outsourcing payroll to shift some responsibilities off your plate, allowing you to spend time on other crucial business tasks.

So how exactly does outsourcing payroll work? And what are the pros and cons of taking this step for your business? Follow this guide to learn more about payroll outsourcing and how it can benefit your business.

How outsourcing payroll works

A graphic explains outsourcing payroll.

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.

According to Technavio, the payroll outsourcing services market is estimated to grow nearly 6% by 2027.

Benefits of outsourcing payroll

A graphic showcases the advantages 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 payroll processing platforms include a suite of HR features, such as time off and insurance management. These can also help decrease costs to your business while streamlining your employee management.

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

A graphic showcases the signs you might consider outsourcing payroll.

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.

According to HR Dive, 61% of respondents outsourced payroll processing in 2022.

How to start outsourcing payroll

A graphic showcases the things to consider when outsourcing payroll.

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. You can get started for as little as $22.50 per month. Chances are, that’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 you should choose 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/

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