The Benefits of Outsourcing Payroll

Key points about outsourcing payroll:

  • When you outsource payroll, a third-party provider handles your payroll and tax filing processes for you. 
  • Outsourcing payroll can help you save time and money while reducing errors and ensuring compliance.

Outsourcing payroll can help your Accounting or HR department focus on more strategic projects. It can also help you stay compliant and save time and money. If you’re thinking about outsourcing payroll with a third-party provider, here’s what you need to know:

What is outsourcing payroll?

Outsourcing payroll means using a third-party service provider to handle your payroll processes (instead of managing them in-house). These certified professionals with payroll services complete the administrative work associated with your payroll, including compliance and tax processes. You might outsource your payroll to an accounting firm, payroll service bureau, an all-in-one payroll or HRIS provider, or another third party.

Which payroll processes or services can you outsource?

Employee payroll has many moving parts. The payroll functions you’re able to outsource will differ depending on the payroll provider you choose. However, most will: 

  • Process your payroll
  • Print and distribute employee paychecks
  • Handle your Federal, state, and local tax filings
  • Process forms like the Form W-2
  • Set up employee direct deposits
  • Manage deductions for things like benefits and workers’ compensation
  • Manage employee garnishments for child support and other court-mandated withholding
  • Ensure your payroll taxes are accurate and compliant
  • Provide up-to-date payroll data

What are the benefits of outsourcing payroll?

Outsourcing payroll can help your businesses in various ways. When you outsource payroll, you:

Save time

Depending on your company’s size, the time spent manually processing payroll can be hours, even days. In fact, small business owners spend 5 hours each pay period calculating, filing, and paying payroll taxes alone. That adds up to 21 days a year! Outsourcing payroll frees your HR team from time-consuming tasks like checking time cards, managing direct deposit changes, and calculating payroll taxes and deductions. With less time spent on payroll, they’ll have more time to focus on strategic projects and responsibilities instead.

Save money

Outsourcing payroll can be more cost-effective in the long run. When you outsource payroll, you don’t have to spend money training employees or correcting errors. According to Software Advice, companies that outsource payroll save 18% more than companies that manage it in-house.

Reduce payroll mistakes

82 million Americans have experienced an error with their paycheck. Most of the time, these errors occur during manual processing. Outsourcing or automating payroll can reduce these errors, along with any penalties. In fact, the American Payroll Association found that automating payroll processing can reduce costs by 80%, mostly by reducing errors in invoices and paychecks.

Ensure compliance

Federal, state, and local payroll and tax regulations change frequently. They can get even more complicated if your employees work from home or work in different states. A dedicated payroll provider will ensure your payroll stays up-to-date with the latest legislation. Most providers also take responsibility for any mistakes that occur, which frees you from any unexpected fees.

What are the downsides of outsourcing payroll?

Outsourcing payroll has several benefits. However, there are also potential risks to consider before making a decision. In most instances, choosing the right provider will ease these concerns.

Less control

When you outsource payroll, the third-party payroll provider takes control of your payroll and tax filing processes. As a result, you won’t have as much authority over the processes. This can make it difficult to ensure everything meets your company’s internal standards.

Reliance on provider to resolve payroll errors

Likewise, if an issue arises with your payroll, you’ll need to rely on your provider to resolve it. As long as your provider has responsive, knowledgeable customer support, this won’t be a problem. However, if their customer service is lacking, it could be difficult for you to resolve errors.

Is outsourcing payroll right for your business?

Ultimately, whether you decide to outsource payroll will depend on your specific business needs. Outsourcing tends to be popular with:

Small businesses or businesses without a dedicated HR or payroll professional

If you don’t have the time or resources to fully manage payroll, a third-party provider can be a welcome source of knowledge and support. You won’t have to worry about processing payroll, understanding compliance, or figuring out taxation requirements.

Large or growing businesses

The more employees you have, the more paychecks you’ll need to manage. If you’re a large company, outsourcing payroll can help you manage a growing employee base. 

Payroll and tax requirements also vary by state and locality, which can make it difficult to stay compliant. If you’re expanding into different states, a third-party provider can help you navigate multi-state compliance.

Outsourcing Payroll with an HRIS

Outsourcing payroll can help you save time and money, ensure compliance, and more. If you decide to outsource payroll, there are many providers to choose from. While they each have their pros and cons, an HRIS provider can be the most cost-effective choice.

When you outsource payroll with an HRIS like SentricHR, you get accurate, timely, and compliant payroll and tax filing in addition to a complete solution for your HR needs. SentricHR’s all-in-one software helps you process payroll, track business expenses, and more. To learn more about payroll with SentricHR, speak to one of our product experts today!


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