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The Pros and Cons of Outsourcing Payroll



by Debbie Allen


Payroll is one of the least-liked tasks related to running a business. Nonetheless, payroll is necessary. So it is not surprising that even the smallest businesses decide to outsource this chore.


However, there are some things that should be considered before jumping on the band wagon that outsourcing payroll gurus ride. The fact is, as tempting as it is to hand over the responsibility, doing so comes with risks. Before you make the decision to outsource your payroll, at least take the time to consider the pros and cons as outlined below.




  1. Outsourcing saves you time
  2. Taxes and other deductions can be calculated accurately
  3. Professional services include best practices regarding compliance with payroll laws
  4. Cheaper than the cost of an in-house payroll specialist


Depending on the particular outsourcing program or service you choose, some of the features included can be direct deposit of paychecks or lowered printing costs of checks and pay stubs. In addition, some companies can provide time-clock features that eliminate the need for the business to calculate the hours each employee worked during each pay period. Since human resource staff are freed up, they can spend time working on other tasks to help develop the business. This might include things like training, recruiting, and hiring. Focusing on the core business can help ensure the business will grow and continue to succeed.


Payroll companies are experts at the complicated calculations related to taxes and other employee payroll deductions. Payroll companies can easily calculate wages that include overtime, commissions, bonuses, and other types of pay. In addition, these companies are used to computing pensions and retirement savings as well as other kinds of benefits programs. Payroll companies are well equipped to provide accurate calculations on a consistent basis. In addition, working with a payroll company can be a way to ensure that taxes will be paid on time.


In most cases, outsourcing to a payroll company is cheaper than hiring an in-house payroll specialist. However, it is always advisable to shop around and compare costs before making a business decision.



  1. Less control
  2. Security threats
  3. You may be paying for services you don’t need or use


Although there is a substantial relief associated with handing over payroll tasks to a payroll services company, this does in fact give the business less control over much of the sensitive information related to it. In addition, in some instances the same data may be less accessible to the business.




The payroll company will have access to information such as employee social security numbers and bank account numbers associated with them as well as those associated with the business. This can pose huge security risks. It is very important to investigate how this information is protected.


Keep in mind that even the best payroll companies can make mistakes, and your business/HR staff will not be able to oversee and manage the payroll operations. Be sure to do thorough research before making a decision to do business with a payroll company. The fact is, when tax mistakes are made, it is the business that is ultimately responsible, not the payroll company.


Many payroll companies offer services that small businesses may never need. However, some companies include these services in package deals. Although the package may be offered at a low cost, the savings are not real benefits if the services are not being used. The point is, when shopping for a payroll service company, it is important to find those that offer good prices on services you will actually use.


Should You Outsource Payroll?

The pros and cons of outsourcing payroll have been presented. It’s up to you to evaluate how outsourcing will affect your particular business. In almost every case, outsourcing makes sense.However, this is not something you can enter without first doing some homework. You have to take the time to evaluate the needs of your business as well as your personal preferences. Then you should research the options available.


From that point, it is really a matter of comparison shopping. Check companies’ online reputations and get references before you make a final decision, and take advantage of any free trial periods before hiring the company of your choice. Outsourcing your payroll is a big decision, but it is one that can make running your business much easier. It is highly recommended!


Screen Shot 2013-06-25 at 6.37.15 PMDebbie Allen is a freelance writer and online marketer. She has a background as an Organizational Development Practitioner, which has provided her with a unique insight into the infrastructure of businesses. Debbie enjoys writing about small business management topics as well as issues that relate to self-development.



Photo Credits

stockimages | pakorn | Stuart Miles | Debbie Allen

Author : Guest Writer

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