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Is Outsourcing Payroll Right for Your Company?

BY: Tricia Benjamin | 01/27/22

At some point, every company will ask themselves if it is worth it to have certain tasks performed in house or by an outside provider. Typically, the tasks that are considered for outsourcing are the most time consuming and carry the most liability if they’re done incorrectly. Payroll is one of the most common roles companies consider for outsourcing. Some of the reasons to consider outsourcing include the following:

  • Saves time, which enables you to focus on core business functions
  • Access to trade and system expertise helps ensure compliance and efficiencies
  • Reduces costs with items like fines or penalties associated with mistakes
  • Eliminates security risks by avoiding circumstances where employees could tamper with records

Let’s take a closer look at each of these.

Time Savings

For a small company that cannot afford to hire a payroll administrator, payroll can be all consuming. This prevents the processor from being able to accomplish other daily tasks and functions. Those unfamiliar with payroll may think it can be easily generalized to the action of “pushing buttons,” but as payroll professionals know, this isn’t true. Payroll functions such as entering payroll figures, handling employment staffing changes, and keeping up to date with new and updated laws or regulations can be daunting. Thus, outsourcing payroll enables employers to focus on other core business functions like human resources, accounting, and client support, etc.

Access to Expertise

During those heavy payroll weeks, it can be difficult just to get payroll processed on the promised pay date, and it doesn’t always allow the extra time needed to research and keep up to date with the ever-changing federal, state, and local regulations. Outsourcing your payroll puts it in the hands of experts who make payroll their business and have the best practices in place to stay current on a multitude of payroll-related activities. This outsourced team is able to stay up to date on regulatory changes, withholding rates, government forms to file, and may also be able to provide human resources information system (HRIS) expertise. As an outsourced payroll provider, I have been able to take over a client’s payroll and review the setup of a multitude of systems to ensure they are correctly set up to process the most efficient and accurate payroll possible. Using a practiced vendor ensures that you no longer need to worry about compliance and accuracy.

Reduces Costs

Small businesses that outsource their payroll will see immediate cost-saving results in two ways. One of those is the reduced cost of overhead that would usually come from hiring and offering benefits to someone who is specialized in this service, along with training the right payroll professional. It’s not uncommon that even an experienced payroll administrator needs time to be trained. This may impact productivity from two months to possibly a year—depending on complexity. Then there’s the possibility that your company may also need to keep a trained backup in house in case the payroll administrator is unable to complete their duties. With outsourcing, this backup is already built in and doesn’t need to be compensated extra when those issues arise. The other cost saving result you will see from outsourcing could be from reduced fines and penalties because of mistakes being made during processing. Some of these mistakes could include incorrect wage garnishment withholdings, incorrect pay due to wrong payroll entries, incorrect tax withholdings, or failed new hire reporting, etc.

Eliminates Security Risks

These days company practices can be at risk for security concerns, but payroll is especially in danger of internal or external information tampering. Business leaders should be cautious, especially when it comes to their organization’s payroll. Using an outside payroll processor can eliminate data leaks. The payroll solution should also be examined for its security practices. A good payroll vendor utilizes a proven, thorough, and fail-proof security system that safeguards your company’s confidentiality. An organization that doesn’t have a need for outsourcing payroll should consider incorporating in-house payroll software that secures the company’s server and internal network from security breaches and cyberattacks. Most cloud-based payroll services and outsourced processors have redundant backup practices and invest in modern, proven systems for storing and protecting your company’s data.

There are several options for outsourcing. Some of those options include:

  • Using your payroll provider’s comprehensive services offering
  • Moving to a professional employer organization (PEO)
  • Using a third-party company that specifically provides outsource services

An outsourcing company can provide you with an unbiased third-party opinion of not just your process, but your practices that impact payroll and perhaps, even your payroll provider. Most outsourcing companies support more than one system. When clients come to me, I can recommend changes and best practices to make the payroll process more efficient and reduce payroll errors. I can also give feedback if another payroll system may be more beneficial for the client’s specific business. Without having to worry about selling the client a product, the client can then trust my uninfluenced feedback. My co-workers and I are also uniquely qualified to help clients make the recommended changes in their solution without having to involve another resource. In my opinion, one resource and one solution is the recipe for payroll success.

So the question of whether or not to outsource may still weigh heavily on your company’s mind, but just remember these four areas where outsourcing can really make a difference.

Tricia Benjamin is a Solutions Consultant at HUB International. She is a member of the APA’s Best Practices and Emerging Technologies Subcommittees of the Strategic Payroll Leadership Task Force (SPLTF), the Federal Issues and State and Local Topics Subcommittees of the Government Relations Task Force (GRTF), and the Board of Contributing Writers for PAYTECH. The views expressed in this article are her own.