Outsourcing Payroll Processing – Should You Do It?

Outsourcing Payroll Processing - Should You Do It

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Outsourcing Payroll Processing: Dive into the decision-making process. Is it the right move for your business? Let’s find out together!


45% of small businesses outsource payroll (National Small Business Association). Payroll is most often outsourced by business owners who value their time and peace of mind. The majority of payroll duties, include wage computations, tax withholdings and deposits, reporting, etc., are handled for them when they work with a full-service provider.

Whether you work for a large corporation as a payroll specialist or as a small business owner, outsourcing can help you save time and money when it comes to tax filing, payroll computation, and other payroll-related tasks. In this blog, we will discuss outsourcing payroll processing. Should you do it? Let’s begin!

What is Payroll Outsourcing?

What is Payroll?

Payroll is much more than sending out checks. It includes a range of activities, not all of which must be completed by one single entity. The procedure starts with the incorporation of workers into a payroll system and continues with the completion of year-end tax obligations.

Payroll functions include:

  • Gathering employee data
  • Establishing direct deposits and automated payments
  • Keeping track of hours worked or timesheets
  • Figuring out unpaid wages
  • Delivering paychecks
  • Earnings in accordance with court orders
  • Data related to tax preparation, including health insurance and workers’ compensation claim

The list of employees who must be paid by their employer and the total amount of wages and salaries that the firm owes can both be referred to as “payroll.” However, in the context of modern-day business, payroll mostly refers to the company or procedure in charge of paying employees.

What is Outsourcing?

The act of contracting an outside party to execute certain services that were previously done in-house is known as outsourcing. It is the process of hiring away business functions. Globalization has increased its financial usefulness as a short-term cost-cutting strategy significantly by providing access to labor that is substantially less expensive initially than that of the US labor market.

Did you know that outsourcing was first recognized as a business strategy in 1989 and became an integral part of business economics throughout the 1990s?

Businesses can also outsource their business functions to focus on essential components of their operations while delegating the less important tasks to outsourcing companies.

What is Outsourcing Payroll?

When strategic outsourcing first started, businesses felt most at ease assigning low-skill jobs to people who worked in areas of the company that weren’t sensitive. In contrast, a lot of businesses outsource important functions like handling finances and customer support. Payroll functions are among the many other functions that are now included in outsourcing. These functions were formerly handled by administrators or human resources departments.

It might have once seemed unimaginable to allow a third party to oversee extremely sensitive information and allocate corporate finances. However, a large portion of the payroll process consists of standard procedures that adhere to established guidelines, allowing for the delegation of work to reliable partners without compromising decision-making power.

Outsourced Payroll Functions

It is feasible to assign almost all payroll tasks to an outsourced agency. Here are some outsourced responsibilities:

  • Setup of Payroll accounts
  • Setup of a Payment method
  • Figuring out the amount of pay due
  • Delivering pay of the employees
  • Monitoring time spent
  • Putting in place security measures to protect employee and business data
  • Ensuring adherence to legal requirements
  • Income taxes, payroll taxes, and wage garnished withheld
  • Payroll tax payments
  • Finishing off year-end tax preparation
  • Handling employee deductions

Benefits of Outsourcing Payroll Processing


Payroll is often outsourced by businesses because it is more cost-effective for them as compared to managing payroll in-house. If the payroll functions are delegated to a payroll outsourced agency in a country where salaries and wages are often cheaper, the client company will typically recover a large portion of the difference in employee remuneration, and there will be substantial savings.

This might still be the case even in cases of domestic payroll outsourcing. For instance, a company with headquarters in New York that manages payroll in-house has to pay “big city salaries” to recruit qualified candidates for payroll management, much like it does for the rest of its internal employees. If third-party personnel in a place with a lower cost of living may take on many hours of work instead, outsourced functions are often performed at a lower cost.

Focus on Core Functions Increases

A business’s primary focus is, naturally, its core business operations. It is necessary to allocate resources to more outlying tasks, like payroll. Depending only on your in-house team to put in time and effort could ultimately reduce your opportunities for development. It might further undermine business effectiveness when unforeseen problems come up.

Payroll outsourcing companies are the only ones that consider payroll administration to be a fundamental function. For most businesses, outsourcing payroll will significantly lessen a significant administrative burden, enabling them to eliminate the burden on their employees and concentrate on core duties. This is one of the significant benefits of outsourcing payroll processing.

Expert Assistance

Another benefit of outsourcing payroll processing is that companies that specialize in efficient payroll administration may take over payroll-related tasks. Most businesses perform payroll services internally, which is a little more than a crucial housekeeping function, whereas the company is an expert in some other activity (such as the production of goods or providing services).

On the contrary, a payroll service company or payroll outsourcing company could manage payroll-related duties because they have experts assisting many other businesses as well. This also suggests that the third-party vendor has more overall payroll experience, in addition to having efficient management tools in place for the entire range of payroll tasks. They probably have all the required software in hand and employ people who have received task-specific training.

The quality differs from one payroll outsourcing vendor to another, but it is also visible that a lot of businesses still consider these outsourced payroll managers to be more skilled than their internal employees. As a business, you need to get things done the right way. Mistakes can be expensive and time-consuming to rectify. Leaving it to the professionals is particularly beneficial for big companies that have complicated and demanding payroll duties.

Reduced Payroll Mistakes

For many businesses, the biggest challenge to successful payroll procedures is erroneous data. The only duty of a payroll manager is to guarantee accurate payments and adherence to tax regulations. Consequently, the likelihood of error is reduced compared to an internal accounting staff. Payroll mistakes may have a detrimental effect on your employees. They might upset their lives and budgets, and adding unnecessary tension.

Errors and delays in payroll may harm your customers’ faith in you and your company, making them doubt your financial stability and managerial skills.

Increased Efficiency

The majority of payroll service vendors stay updated with technological developments. It enables them to elevate their services and give their clients the greatest possible experience. This also includes AI and automation features that free up payroll experts to concentrate on improving your payroll system. Ultimately, this increases efficiency and decreases the likelihood of human error.


There are many reasons why you should outsource your payroll processing. However, only one resource cannot lead a business toward payroll management success. Business owners should consider the ease and cost savings of outsourcing payroll processing before making a choice. Guidance can be provided by having a thorough grasp of the benefits and drawbacks of payroll outsourcing as well as precise information about current payroll management expenses.

More resources for you:

The Future of Outsourcing – Latest Trends and Predictions

How Outsourcing Can Improve Your Marketing ROI?

10 Business Tasks You Can Outsource as a Startup Easily

Questions to Ask When Interviewing an Outsourcing Company


Is it better to outsource payroll?

By outsourcing time-consuming operations like data entry, tax filing, and other paperwork, payroll service vendors helps businesses save money on payroll processing, lower compliance risk, and save time.

Why you should invest in payroll outsourcing services?

You can save important time and money by outsourcing payroll services instead of doing payroll-related tasks in-house. Payroll duties may be delegated to a specialist vendor, freeing you up to concentrate on your primary business operations, including expanding your clientele and improving customer service.

Why outsource HR and payroll?

You can get help and direction from a whole team of qualified and experienced HR, benefits, payroll, compliance, recruiting, and HR technology professionals by outsourcing your HR services and avoiding the high overhead costs (salaries, taxes, insurance, vacation, office spaces).

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