Outsourcing Payroll vs Doing It In House

When you outsource your payroll, you're essentially giving all of the responsibility to an outside company. This means that they will be responsible for collecting all of your company's information, usually through the Internet. They will keep track of things such as hours worked, deductions, pay rates and taxes. Though all of the companies that you may outsource your payroll to operate under the same principle, their service varies – both qualitatively and quantitively.


Regular payroll requires either an individual or if the company is big enough, an entire department with specialized knowledge of the various ins and outs of payroll procedure. The company employs workers for the specific task of paying other employees. Outsourcing payroll is different. Instead of paying an in-house employee, the business pays a different company to do the same job. Think of it as if you're building a house. In the traditional payroll system, one company would be responsible for every step of the process. When you outsource your company's payroll, one company focuses on the wiring, while another focuses on the plumbing.

After selecting who to outsource your payroll to, you'll need to work with them to solidify the initial set up. Once this set up is complete, the payroll service takes over, working with you to resolve any problems that appear.

Who Outsources Payroll?

Outsourcing payroll is generally done by small businesses who are large enough to have a complicated payroll, but small enough that it doesn't make sense to dedicate a department exclusively to processing it. Large businesses may opt to outsource payroll if they feel that the benefits of having a dedicated team of payroll professionals outweigh the cost.

Benefits of Outsourcing Payroll

Outsourcing payroll solves various problems that occur during regular payroll. As the company specializes in payroll, they can use their expertise to ensure that payments are both prompt and accurate, which helps avoid penalties. Payroll services keep up to date when it comes to changing government regulations and is capable of filing both quarterly and annual tax reports, something that a regular payroll department may be unable to do because of other responsibilities. Maintaining a traditional payroll department can result in a split focus, which prevents companies from running as efficiently as they could. Removing the burden of being a payroll expert lets clients focus on their business operations.


The main downside of outsourcing payroll is that you lose a certain amount of control. You'll have less flexibility in your payroll, as the company you outsource to will have their methods. This is why it's key to make sure you gel with a payroll company before outsourcing your work to them.

The other major downside is that outsourcing payroll is usually more expensive than doing payroll in-house. You're paying extra to avoid dealing with the inconvenience of managing your payroll. Whether or not you decide to outsource payroll or not is usually dependent on one question: is the cost of outsourcing payroll – both financially and the loss of control – worth the benefits?