Payroll Services
Published November 06th, 2016 by

Benefits and Downsides of Outsourcing Your Payroll Management

Benefits and Downsides of Outsourcing Your Payroll Management

In today’s era, there is an increasing and tightening competition among businesses that most of them would want to gain more time to focus on core activities. Because of this, the concept of outsourcing flourished as one of the best solutions, wherein a third-party service provider takes over the role of executing the non-core, but equally important, tasks for businesses that needed more time and concentration for profit-earning activities.

The tough competition in the market tends to be unforgiving for small businesses. In order to stay relevant, effective and profitable, it must find ways to have leverage despite of its limitations. Outsourcing the other tasks, which includes payroll management, can give its business a boost in terms of staying efficient with its internal operations while you as its owner, focus on innovating, marketing and selling your products and services. It also gives you a cost efficient solution, wherein you experience enterprise benefits without the need to capitalize on your own tools, or hire specialists.

Why Businesses Outsource?

It started as a trend, but now more businesses embrace the idea of outsourcing as one of its viable solutions to leverage. In the IT industry, the number one cost effective attribution is for disaster recovery, according to Computer Economics’ released IT Outsourcing Statistics 2015-16. According to’s Healthcare Outsourcing Projection for 2013-2018, its outsourcing market is expected to grow by $47 billion by the year 2017. Businesses resort to outsourcing because of these key factors:

  1. The lack of expert labor to fill up the position gaps in companies.
  1. The increasing demand for time and resources in the core business sectors such as marketing and sales, due to the growing activities to manage.
  1. Effects of globalization, where there is more freedom to hire remote and cross-cultural employees.
  1. The cost of labor in other countries or states tends to be cheaper, so global outsourcing can be a more cost efficient option.
  2. The expansion of cloud-based services, where it can significantly cut back the capital costs of businesses.

Another reason why some businesses outsource payroll is because of its complex nature, especially on the aspect of compliance to IRS. Penalties for payroll mistakes can be too harsh for businesses, and it can also put its reputation at risk. When outsourcing to the right service provider, you can make sure that the standards and protocols involved in payroll are being complied with, and taxes are filed on time.

Benefits of Outsourcing Payroll

Many turn to outsourcing for a number of reasons, and most of them find that its advantages weigh more than its disadvantages. When deciding whether to outsource or continue doing it in-house, consider your needs at the moment and in the future. Will it align with the objectives, goals and direction of your business? Are you willing to take the risk to give out valuable company data to third-party service providers? Carefully weigh your options on what types of payroll services are offered, and seek expert advice if necessary.

There are tremendous benefits that outsourcing does for business. One of the most popular ones are IT, recruitment, payroll, mobile app development and customer support outsourcing.

To help you arrive at the best decision, here are what benefits that most businesses experience when outsourcing to the best payroll agencies:

  1. Expertise

Most outsourcing vendors have a specific line of focus when it comes to a certain industry or task. With this, they have invested on specialized tools, software, and training for their staff, to give the best service for their clients. These technological advancements will also provide them the leverage from their competitors in the same field. Aside from that, you can gain access to the benefits of these investments, without the need to capitalize on them yourself, making it a more cost effective solution for your business.

Another advantage is their extensive knowledge about labor laws and compliance standards. This helps your businesses comply with the legal side of doing a business without the need to get another legal service, which cannot be afforded by some.

  1. Focus and productivity

Knowing you have a partner that can give you expert service, will give you the confidence of having an efficiently executed task without compromising its quality. Outsourcing companies can render the right and dedicated time and attention to the task so that you can divert more of your time and energy in performing core tasks.

  1. Risk management

The expertise of outsourcing vendors is not only towards its operating field, but also in risk mitigation. Part of their service is to make sure that processes are executed properly, and that risks are properly addressed and minimized. This gives you the peace of mind knowing that you have full support and almost 100 percent reliability for your outsourced tasks.

  1. Cost effective

In some cases, outsourcing solutions can reduce your operational expenses in the long run, because you don’t need to sustain a bunch of people with the same salaries and benefits even Capitalizing on tools and training can be a major upfront expense, and having an outsourced solution could be friendlier for your cash flow.

Payroll services companies can also give you significant savings in hiring and managing additional employees – recruitment costs, salaries, bonuses and benefits. It also spares you the additional cost of IT services for adopting payroll technologies. Aside from that, you cannot bypass the time savings you achieve, by not having to personally monitor your payroll.

  1. Ease and flexibility

Outsourcing to payroll agencies not only helps you manage your employees’ salaries, but you can also maximize the services by having a dedicated provider than can take charge of your tax filings and related processes. The IRS is continuous in updating its tax policies, and through payroll service providers, you can be sure that you comply with the latest changes.

Payroll services can be also effectively integrated with recruitment software, time tracking software and even to scheduling systems, to appropriately streamline the workflow among these associated processes.

  1. Cost tracking

Especially through online payroll services, you can keep track of where your payroll expenses actually go. The transparency that online processes give you more insight on how to better manage the financial component of your business and at the same time, gain the efficiency in allocating your resources. This way, you have better control over your financial management that will provide you the best results.

  1. Convenience

Outsourcing gives you the benefit of convenience, through consolidated reporting and updates from your service provider, which they can deliver to you on a regular basis. More so for online payroll services, you can always access the system when you have an internet connection, through their web portals.

  1. Security

Payroll companies needed to comply with the highest standards for data security and protection, since they will be handling critical data from its clients. This helps businesses resist fraud, and stay secure despite of exposing their data to a third-service provider.

  1. Reliability and accountability

Outsourcing your company’s payroll management to the right service provider can give you the assurance of having an accountable partner for executing this important task. It also spares you the hassle of handling all the responsibilities for everything in your operations, so you can focus on core tasks that can improve your profits and strengthen your brand.

Downsides of Outsourcing Payroll

There are always two sides of a coin, and two sides of the story. When it comes to business solutions, alongside the advantages are some disadvantages. Here are some of the downsides of outsourcing payroll services to a third-party service provider that you should consider:

  1. Data exposure

When you outsource, you risk access to your company data – your employees’ information, identification numbers, salaries, taxes, revenues and budgets. The risk can be minimized by including non-disclosure agreements and data security measures to protect your data and the interest of your company when delegating access to third-party service providers.

  1. Incompatibilities and difficulty in streamlining processes

It is important that you consider your existing system, standards and protocol to ensure that the tools that your service provider uses can effectively integrate with your own. It is better to streamline data and processes this way, so that you can also monitor how they execute the tasks you outsourced to them.

  1. Hidden or additional cost

Some service providers incorporate hidden or additional costs without your knowledge, or it may have been written on the contract but weren’t able to discuss. It is important to read and have at least a basic understanding of what is stipulated in the contract before signing it.

It is also important that before you find yourself in the market for payroll service providers. Make sure that you clearly outlined your actual needs that you cannot compromise. When you don’t have a firm grasp of your objectives and goals, you can be easily swayed by sales pitches from agents, which may end you up subscribing and paying for features you don’t necessarily need.

  1. Loss of control

Outsourcing services may risk you of losing your control over all the information and access you delegated. You should also ask about after-contract agreements, which inform you on how they are going to turn back over your data, or if it will retain on their systems. Having this kind of vulnerability might discourage some businesses, but in case you find it tolerable and worth the risk, you can negotiate your options and have the necessary clauses included in the contract agreement to protect your interests.

Being an informed business owner or client will help you make the right decisions, especially when choosing which payroll service is the best for your needs. Get to know more the different reviews of payroll agencies and services, visit

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