Payroll: To Outsource Or Not To Outsource?
What should small and large companies consider when choosing a payroll solution?
Whether your business is large or small, you’ve probably debated whether to invest in payroll software, or outsource your payroll process.
Many businesses often assume that payroll software is the cheaper alternative, or that outsourcing is reserved for big businesses. But outsourcing part or all of your payroll process has the potential to save even small businesses a significant amount of money in the long term, as well as increase efficiency.
Once you’ve made the decision to invest in your payroll process, you’ll choose between three options:
- Run a software solution in-house
- Run a processing solution, where you outsource your payroll but retain some components in-house
- Run a fully outsourced model, where a third-party provider manages your end-to-end payroll infrastructure
But which solution is right for your company? Here are some key factors to consider:
Companies running payroll in-house can spend, on average, 18% more than those that outsource. Small and large businesses often use payroll software to avoid outsourcing fees, but might not account for the cost of time spent on payroll tasks. Outsourcing all or part of your payroll process reduces that time and gives employers space to focus on strategic initiatives.
As your business grows, in-house payroll becomes increasingly complex and time-consuming. CEOs of SMBs lose around a fifth of their working week to HR tasks – time that could be spent on their core business. If you’re unsure on whether to commit to fully outsourcing your payroll, you can still outsource time-intensive processes like data entry.
Running payroll in-house means greater exposure to regulatory authorities and potential fines, especially if you’re managing payroll across multiple legislative areas. Your payroll team must maintain the skills needed to remain compliant, even as legislation evolves. If you work in multiple countries or only have a single staff member handling payroll, outsourcing both reduces the risk of fines and removes the pressure on staff to keep up with the latest legislation.
Types of staff
In-house payroll might make things simpler for businesses with low employee turnover, whose staff receive a defined, annual wage. But in-house payroll quickly becomes complicated when dealing with causal workers, or if employees are billed hourly, driving up time spent on payroll and increasing the risk of human error. In this case, outsourcing payroll, or working with a payroll processing company, may be the best alternative.
Payroll has many moving parts, and nothing helps them work in sync like partnering with a payroll service provider. By integrating related functions like time and attendance, payroll, pension contributions and other benefit payments, your experienced provider can save you from entering the same information over and over again and help to dramatically reduce errors.
Get ADP’s handy guide “Choosing the right payroll provider for your business” to find out more about what you need to consider when choosing a payroll solution.