Payroll Outsourcing In 2024: The Ultimate Guide

Small companies may only have one or two employees handling payroll processing, all HR tasks, as well as client order fulfillment. During busy times, payroll processing can take valuable time that could otherwise be spent on tasks that keep customers happy and grow the company. Outsourced payroll services will also generally include the processing of deductions for employee contributions to benefits packages, as well as employee taxes. Payroll outsourcing involves hiring an external company or an individual to handle all payroll functions. Some suppliers provide a basic service; others provide the full package including liaising with the HMRC and maintaining full compliance so your business never has to deal with payroll. When choosing a payroll outsourcing provider, it’s important to remember what’s at stake.

• If your business doesn’t have these skills in-house, you can organise your payroll by outsourcing it.
• This has grown to include many activities normally performed by administrators or human resources departments—including payroll duties.
• Certain authorities hold these companies accountable to protect your information.
• The OECD infographic below breaks down the relationship between the two concepts.
• The Internal Revenue Service (IRS) provides an excellent breakdown of the different types of payroll service provider in the United States.

The right software reduces stress and a heavy administrative lift. To this end, assign administrative employees to serve as a liaison between your workforce and the payroll processor. That’s why it’s not unheard of for a company employee — like a dedicated HR pro — to verify the outsourcer’s work before payroll runs.

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The final major component of the process is for outsourced end-of-year tax duties. This includes both submitting documentation to tax authorities—which the provider has maintained throughout activities—and remitting the tax dollars themselves. When it comes to pricing models, there also are different options.

• Tax compliance and compliance with state, federal, and other applicable regulations are a must.
• Finally, the client shares all relevant information the provider needs to complete the payroll functions it will assume.
• It saves you the trouble of filling out elaborate forms and calculating and collecting taxes.
• Each state government requires a company to report the hiring of new employees to them, so that they can determine if there are any garnishments outstanding against these individuals.
• Outsourcing payroll can help businesses scale their payroll operations up or down without having to hire or layoff employees who handle payroll.

Many providers do the toughest parts of payroll, while leaving basic admin to you. For example, you might record time and attendance, and keep employee records. But they’ll calculate all the pay, taxes and other deductions. And they’ll set you up with software that makes your tasks straightforward.

You end up with fewer payroll processing errors

Mistakes made by a trained, experienced, payroll outsourcing company are far less likely to occur. However, they can happen and often take a much longer time to sort out. This can lead to upset workers, wasted time, and penalties, and the responsibility ultimately falls on you. If you have a small administrative department and are looking to make payroll and other HR tasks simpler for them, you may want a provider that has a powerful, easy to use and integrate software platform. A Human Resources Information System (HRIS) may be a good option if your staff are already somewhat familiar with payroll and deductions. In short, outsourcing payroll keeps you on the right side of the law.

As tech development has streamlined payroll’s more tedious tasks, however, outsourcing payroll can be more cost-effective. For more advanced services, pricing can be a little higher per month—but the long-term savings in time, effort, and accuracy quickly make outsourced payroll cost-effective. Only 17% of US businesses outsource payroll—it’s common to not know when to make the switch. There are a few signs it may be time to think about outsourcing your payroll solution.

How Does Payroll Outsourcing Work?

Alternatively, this person or group won’t work directly for the provider, but will have the access they need to run payroll. It’s impossible to know which payroll processing software is right for your company without doing solid research beforehand. Your research should involve asking questions like the ones listed above, then seeing what each platform offers. It’s no secret that payroll management can be a struggle for small businesses. In fact, according to a Deloitte survey, as many as 45% of small businesses say avoiding mistakes was a reason they chose to outsource payroll. When you outsource payroll for your organization, professionally trained experts will partner with you to handle part of the payroll process on your behalf.

At the very least, outsourcing payroll lets you offload this crucial task without needing to hire your own expert with a full-time salary. The advantages to using payroll outsourcing companies bookkeeping basics stretch further than just a phase of your business’s growth. Before this practice, it was unheard of for companies to entrust compensation to anyone outside the organization.

Although they don’t have a mobile app right now, their website has some educational resources for you to learn from. As with all outsourcing, you should balance the advantages against the potential pitfalls – in this case, the financial costs and the risk of communication errors, particularly for complex payrolls. If you’re considering outsourcing payroll to someone else, you should weigh up the pros and cons. Companies experienced in arranging outsourcing contracts with third-party entities can rely on past experience for guidance. For companies newer to outsourcing, however, it’s worth taking plenty of time to select the right provider and to make sure all other aspects of an arrangement check out. To save even more money, consider using a free payroll software solution.

When should you outsource payroll?

Many of these services offer a variety of additional services including benefits administration and HR services, usually for an additional cost. The basic service can be inexpensive compared to the time it would take to do it yourself. In small and quickly growing companies, employees often wear many hats, performing functions across different categories. What’s more  it can take up many work hours when all related tasks are included.

If you don’t have the time, money or expertise to handle it in house, payroll outsourcing can help. It allows a third-party payroll services provider to handle the administrative aspects of payroll so you can focus on running and growing your business. Before you choose a payroll outsourcing provider, make sure you know exactly what you’re looking for.

You save money

Payroll is an important business function that can be time-consuming, and costly, and keep you away from core processes. If you do your research, find trusted companies, and can justify the cost with the benefits, outsourcing payroll could very well be the answer for you. For full-service payroll outsourcing, the outsourced party handles pretty much everything. Full-service payroll often includes other added benefits, too, such as HR support, built-in project and time tracking, and reports. Payroll outsourcing providers specialize in doing one set of tasks well. The success of their business relies on processing and reporting payroll correctly and professionally.