7 Key Benefits of Outsourcing Your Payroll

Allied OneSource • August 14, 2024

You might think that paying your staff is just handing over a wad of cash at the end of the month, right? Wrong. Today’s payroll is more complicated. There are taxes to be deducted, deductions to be made and regulations to be followed. There are benefits to be managed, overtime to be calculated and records to be kept.

It can be all time consuming and stressful which is why more than 36.3 percent of employers outsource all or some of their payroll.¹ The main benefit of outsourcing payroll is you get to focus on what really matters: your core business functions that grow your business and shape your culture.

Some businesses do payroll in-house, many are outsourcing. Let’s look at the benefits of outsourcing and how it compares to in-house.

In-House vs OutSourced Payroll: A Quick Comparison

While internal payroll offers direct control and can be suitable for small businesses with simple needs, outsourcing often provides significant advantages for growing companies. Let's compare the two approaches:

Internal Payroll:

Provides complete control over payroll processes
Allows for immediate access to payroll data
Can be cost-effective for very small businesses with straightforward payroll needs
Requires dedicated staff, software investments, and ongoing training
Increases compliance risks if not managed by payroll experts

Potential Risks:

Increased compliance risks if not managed by experts
Vulnerability to staff turnover or absence
Potential for costly errors or missed deadlines
Time and resources diverted from core business functions

Payroll Outsourcing:

Leverages specialized expertise and advanced technology
Reduces overhead costs associated with payroll software and staff
Offers scalability as your business grows
Enhances compliance with ever-changing regulations
Frees up internal resources to allow organizations to focus on core business functions

Potential Risks:

Dependence on a third-party provider
Potential data privacy and security concerns
Less direct control over the payroll process
Possible communication delays or misunderstandings

Ease Your Load: Advantages of Payroll Outsourcing

Why think about outsourcing payroll? Handing over your payroll tasks to an outsourced provider can streamline your processes, decrease the chance of errors with taxes and pay stubs, and ensure compliance with regulations. Let's explore why it's a wise choice.

Reduced compliance risk.

If you're handling payroll locally or globally, following the laws related to paying your employees is important. Payroll tax laws differ from country to country and sometimes even within states or counties. They cover how employees are paid, when payments are due, and deductions like health insurance and social security.

If your team doesn't know the local labor laws well, you might make mistakes in classifying workers. For instance, failure to pay covered employees at least the correct minimum wage can result in fines. And in the United States, the Fair Labor Standards Act (FLSA) fines up to $1,000 per violation for noncompliance.²

That's why many companies outsource payroll services to ensure they adhere to regulations and avoid expensive errors.

Global payroll providers stay updated on federal and state regulations, simplifying calculations and filings. They keep accurate records, prepare payroll data, and file statutory reports promptly. This is their area of expertise. If you handled this yourself, it would take a lot of time and could lead to penalties, costing you even more.

Cut down on both time and expenses.

Outsourcing payroll services usually costs less than setting up an in-house payroll department. This is especially true for companies in areas with high living costs, where hiring and training a payroll team is a big investment.

When you weigh the costs of handling payroll internally versus outsourcing it to a payroll provider, you'll see significant savings. Companies have reported saving 20 to 50 percent.³ This allows you to allocate resources more efficiently towards other aspects of your business.

Consider all the tasks your in-house payroll team has to manage and the expenses involved. Some of these activities include:

Calculating payroll
Signing and handing out checks
Buying payroll management software
Calculation of taxes and returns
Dealing with garnishments
Handling W2 forms
Reporting new hires and terminations
Training and support

Outsourcing can reduce costs by removing the need to invest in and manage various payroll processes. It removes the expense of purchasing and maintaining an expensive payroll system and the need to hire additional staff to handle these tasks internally.

Improved experience for expanding teams.

As organizations grow rapidly, payroll processing and compliance become increasingly complex. While small businesses with stable employee numbers might manage internal payroll effectively, outsourcing becomes crucial as your business expands and payroll complexity increases.

Outsourcing to a scalable payroll provider ensures your payroll receives necessary attention and accuracy and avoids payroll errors even during periods of rapid growth. This empowers your in-house team to concentrate on critical business functions and strategic financial planning, rather than getting bogged down in payroll details.

For instance, a growing tech startup might find that as they expand from 20 to 200 employees, their payroll needs become too complex for their small HR team. Outsourcing in this scenario can prevent errors, ensure compliance across multiple states or countries, and free up the HR team to focus on talent acquisition and employee development.

Enhanced security of data.

From 2021 to 2023, data breaches in the US increased by 72 percent, reaching over 3,205 cases in 2023 compared to 1,860 cases in 2021.4 This shows the rising challenge of keeping sensitive information safe from cyber threats.

Outsourcing payroll ensures maximum data security, which will help minimize the risks of embezzlement, identity theft, and other security breaches. Even if you trust your payroll software's security, there's still the safety of the server or network to worry about. Reputable outsourced payroll providers store data on highly secure cloud-based servers and use advanced encryption technology to safeguard your critical information.

They also utilize electronic payment methods, making tracing errors easier and protecting against potential losses. These security measures are all part of their outsourced service, whereas replicating them in-house would be costly.

A skilled team of professionals.

Payroll outsourcing gives you access to a professional team of experts who specialize in studying and researching government regulations. Reputable payroll service providers have experienced teams that can effectively manage benefits and deductions in your payroll system.

Workers' compensation, addressing employee concerns, and overall human resources management are handled effectively by the payroll providers, helping to prevent payroll mistakes and providing an additional benefit for your business.

No risk of losing your internal payroll team.

Outsourcing payroll simplifies the process and reduces complications. It also eliminates the risk of an overworked employee quitting unexpectedly and taking their payroll expertise and valuable knowledge with them, which helps maintain continuity and reliability in payroll management.

The quality and accuracy of output in payroll outsourcing services will always justify your investment, resulting in a substantial return on investment.

Access advanced technology.

Today's specialized service providers use cloud-based systems to manage critical data for improved data integrity, visibility, and audit-tracking of payroll processing.

When HR and payroll functions integrate, manual data transfers become unnecessary as employee data is shared effortlessly. For instance, when HR updates employee information, like promotions or terminations, it's automatically updated in payroll. Because of this, payroll, tax filing, and benefits calculations rely on accurate information that will give better protection for organizations.

You can access advanced technology that can provide deeper insights into your payroll and HR management through advanced analytics tools. These tools go beyond standard reporting and can pinpoint where errors occur, how frequently they happen, and even the financial impact of those issues. This information helps identify solutions to prevent future errors.

MAXIMIZE EFFICIENCY AND FOCUS ON GROWTH BY OUTSOURCING YOUR PAYROLL WITH ALLIED ONESOURCE

Free up valuable time for growing your business by outsourcing your payroll to our expert team at Allied OneSource. With our payrolling services, we take care of:

Collecting and processing weekly timesheets
Ensuring compliance and management of I-9, W-2, and W-4 forms
Conducting background and drug screening as required
Managing health insurance and other benefits
Handling Medicare, Social Security, FUTA, SUTA, Workers’ Comp, and all local payroll taxes

Our payroll solution takes all that work and worry off your plate. We help you streamline operations and eliminate the ongoing administrative tasks of local compliance, taxes, benefits, and more.

Get in touch with us today and make the smart choice for your business's future!

References

"2023 Payroll Industry Report." Payroll.org, https://www.nxtbook.com/payrollorg/payrollorg/2023-payroll-industry-report/index
"Fair Labor Standards Act Advisor." Department of Labor, https://webapps.dol.gov/elaws/whd/flsa/screen74.asp.
"2023 Payroll Industry Report." Payroll.org, https://www.nxtbook.com/payrollorg/payrollorg/2023-payroll-industry-report/index
“Identity Theft Resource Center. "2023 Annual Data Breach Report Reveals Record Number of Compromises; 72 Percent Increase Over Previous High." 25 Jan. 2024, https://www.idtheftcenter.org/post/2023-annual-data-breach-report-reveals-record-number-of-compromises-72-percent-increase-over-previous-high/.