Should You Outsource Payroll?

By Emily Suess

Small business owners frequently ask themselves whether they should keep payroll responsibilities within the business or outsource them to a payroll company. Of course, the answer to that question—like most others—is that it depends. If you analyze the pros and cons of outsourcing, though, you will find it’s much easier to determine which option is right for you.

The Pros of Outsourcing Payroll

  • Perhaps the biggest benefit of outsourcing is that it saves you time. Running your own business is complicated enough; letting someone else deal with payroll details frees you and your staff to focus on operations and customer service.
  • Another important benefit of outsourcing is that payroll errors no longer loom over you. Professional payroll service providers take responsibility for compliance and accuracy issues, and because payroll is their specialty, they’re much less likely to make mistakes.
  • Considering wages and the cost of benefits, contracting a payroll company might actually save you money, particularly if you have 10 or fewer employees. Crunch the numbers to see whether it’s cheaper to outsource or hire a part-time or full-time, in-house employee.

The Cons of Outsourcing Payroll

  • If you outsource payroll duties, it might be more complicated to get the answers you need. Any questions you have will need to be directed to a customer service representative. If they aren’t able to provide an immediate answer, it could be several hours or even days before you have the information you need.
  • Despite the many security protections offered by payroll companies, some owners don’t want to turn over sensitive personal information. The idea is simple: the fewer the people that have access to private data, the more secure it is.
  • In some cases it may be less expensive for you to assign payroll duties to someone in-house. Again, crunch the numbers. You might be able to save money by going with payroll software rather than handing off the responsibility to a third party.
  • Even when you outsource, you still have to do some of the work. Someone still has to provide the data to a payroll company so that your employees can get paid. If an employee is already handling these responsibilities, it may be simpler to have him handle the entire process.

Knowing When to Outsource

Sometimes it just makes more sense to outsource your payroll responsibilities. For instance, if your workers’ hours fluctuate greatly from week to week, your business experiences high turnover rates, or you employ workers in multiple states, outsourcing might be your best option.

Remember when you’re shopping around for a provider to compare prices. Most companies offer tiered services with add-on options like direct deposit and tax filing, and they may charge fees when new employees are added or when existing employees are dropped. When you’re getting quotes, get them in writing so you can do a side-by-side comparison.

If your employees work stable hours, your turnover rate is low or non-existent, and you operate in a single state, then in-house payroll is likely the most suitable option.

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Emily Suess
Emily Suess is a full-time technical marketing writer in the software industry and a part-time freelance copywriter. To learn more about marketing your small business online, check out her copywriting blog, Say It With Me.

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