6 Things You Need to Know About Outsourcing Payroll

Do you get anxious when you look at the calendar and realize another payday is approaching? Do you get frustrated with the amount of time spent processing payroll when you have so many other things to do for your business?

Payroll can be a complex business processes for employers, but it also happens to be one of the most important. No one wants to open the mail to find a tax notice from the IRS. And no one wants to tell an employee their paycheck will be delayed– especially when many have such tight budgets.

For many companies, outsourcing payroll can bring about a variety of benefits.

1. Cost savings

In many cases, the cost of working with a payroll company to manage your payroll is less expensive than purchasing payroll software and upgrades along with supporting the personnel to manage the process. That is especially true as a company grows and the payroll becomes more complex. As you compare the costs of your current process with that of potential payroll vendors, be sure to compare apples-to-apples, and ask about all fees, including any year-end fees.

2. Time savings

Many businesses have found that when they switch payroll from an in-house arrangement to partnering with a payroll provider, their overall time investment in the payroll process decreases. While you will still be responsible for entering your employee’s hours and any rate changes, the payroll processing, paycheck and direct deposit activities, tax filing and payments are automatically handled for you. Payroll providers can also manage garnishments and other third party payments, new hire reporting, and can exchange data with the top time, accounting and benefits software solutions. All of that automation means time savings for you, especially if your current process is a manual one.

3. Compliance

One of the biggest reasons employers turn to a payroll company for their payroll processing needs is taxes. Payroll taxes change often and they involve not only federal taxes, but also state and local taxes, which can become quite complex. So it helps to have tax experts keep up with the regulations for you. Most payroll companies will guarantee accuracy of tax payments, paying any IRS penalties, as long as the information you’ve supplied is correct and was submitted on time. But check with your potential vendors about their specific policies.

4. Security

Payroll companies will often have a level of system security higher than the general small business. Many use security systems on par with banks and also go through vigorous audits to ensure the data is kept as safe as possible. In addition to enjoying that added level of system security, computers with access to sensitive information are kept in areas of the office only accessible by authorized personnel.

5. Expert assistance

The support teams within payroll companies have a lot of payroll experience and some even hold special payroll certifications from the American Payroll Association. They also have the advantage of working with a wide range of companies to work through payroll challenges and all of that expertise can work for you. We recommend asking the payroll companies you are considering to detail how they provide support, where your support office will be located and if you’ll have the advantage of speaking with the same individual or team each payroll.

6. Bundling of related services

There are many services beyond payroll that relate to managing your workforce and often those services can be bundled, offering cost savings plus the benefits of data exchanges. Related services include time clocks and time and attendance software, human resource software, workers’ compensation insurance, 401(k) plans, group health benefit plans, and more.

Outsourcing a key business process like payroll has advantages for many businesses, but it’s important to evaluate whether it meets the unique needs of your particular business. If you think it might save you money or time or give you additional peace of mind, it’s worth further research. For expert guidance on how to outsource any business process, see The Essential Outsourcing Checklist for Businesses.


Melanie Crow is the SVP of Sales & Marketing at Inova Payroll.