How Does Outsourced Payroll Work? Ultimate Guide to Payroll Outsourcing

The advantages to using payroll outsourcing companies stretch further than just a phase of your business’s growth. Using an HR outsourcing company is more than a convenience; it’s a strategic necessity in today’s fast-paced business world. The right partner can boost your organization’s efficiency and elevate your employees’ experience. Only 17% of US businesses outsource payroll—it’s common to not know when to make the switch. Additionally, some companies are subject to tax penalties due to mismanaged payroll administration.

• If you are hiring internationally and your employees need to be hired by a local company by law, a PEO operating in the area will be able to help with employer of record services as well as payroll processing.
• Today’s payroll software solutions can make it easy to manage employee payroll.
• 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.
• The advantages to using payroll outsourcing companies stretch further than just a phase of your business’s growth.
• If your current system causes frequent mistakes, this could become a liability.
• A high-quality payroll outsourcing service will provide you with a full suite of features for running payroll efficiently.

Higher priced offerings may give you more features and functionality than you need. Lower priced options may have hidden costs or exclude important features like automatic tax filings and payments. Before picking a software provider, check its ratings and reviews to make sure that forms and instructions you’re getting what’s advertised (and that businesses like yours appear to be happy customers). It may also be helpful to use this checklist to compare payroll solutions. Before you choose a payroll outsourcing provider, make sure you know exactly what you’re looking for.

How to outsource your small business payroll

A payroll outsourcing partner using a single application can help you consolidate your systems and provides a single source of truth for your data. As the world continues to change rapidly, so do the needs of your business. Whether your organization is in a growth phase or your business model is evolving, change will impact your payroll function.

In deciding whether to use an external payroll provider, you should also consider the fact that your time and mental bandwidth are finite resources. Even if you do everything perfectly, running payroll yourself means you’re not as involved with customers and that you don’t spend as much time dedicated to more strategic activities. If you’re reading this article, you might be in the process of learning that running payroll can eat up a lot more time than you may have expected.

How Much Does HR Outsourcing Cost?

Even the best payroll managers are prone to mistakes or data breaches. Take the time to make sure a provider is both trustworthy and experienced to minimize these inherent risks of outsourcing. In the early days of strategic outsourcing, companies were most comfortable hiring away low-skill tasks distant from sensitive business areas. Nowadays, many companies do the opposite and outsource critical functions such as customer service and money-management tasks. This has grown to include many activities normally performed by administrators or human resources departments—including payroll duties. The process of managing employee payroll is often time-consuming—unless, that is, another company is hired to take care of it instead.

Pros And Cons Of Outsourcing Payroll

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.

Frequently asked questions about payroll outsourcing

That can be especially helpful for businesses with complex needs. You have choices, though, so you can decide what works best for your business. But you can make the right choice if you know what to look for. For instance, a tight-knit company experiencing overnight growth might not be prepared — or even know how — to compensate new employees fairly.

Some payroll suppliers either operate their own 401(k) pension plans or are linked to such plans offered by third parties. These suppliers can link pension deductions in the payroll system to their plans, so no separate pension remittances are required. Larger payroll suppliers have locations in most major cities, and so can directly deliver paychecks to most urban locations. They send paychecks to more remote locations by overnight delivery service.

There’s no guarantee outsourcing will be cost-effective, but many companies choosing to outsource find it cheaper overall than keeping payroll management fully in-house. Hiring out the work can, when all goes well, provide significant advantages and cost savings. Finding a trustworthy third-party provider goes a long way, but a company can’t just pass off any payroll mistakes that arise as the fault of its provider and move on. The client company also remains liable for tax remittance whether or not it has outsourced this particular payroll function, meaning it’s on the hook for any errors even if it’s not immediately responsible. If you are or will be operating in multiple regions either nationally or internationally, only look into payroll outsourcing services that operate in those jurisdictions.