Payroll Services
Published November 04th, 2016 by

The Merits and Demerits of Payroll Outsourcing

The Merits and Demerits of Payroll Outsourcing

As a business grows, responsibilities and tasks also begin to get a bit heavier. If you are a business owner or a manager, you probably have a lot on your plate. You may find it hard to manage your company’s time and resources and accommodate every important task. A business’ payroll is one of the most important fields in an entity. However, payroll processing is never an easy task. It can be challenging for an organization because it requires expertise and knowledge. Hence why, many choose to outsource payroll to a third-party entity. Payroll processing companies are believed to do the work a lot better because they have enough experience and expertise with payroll.

A lot of organizations and companies are already enjoying the benefits of using payroll services. Many saved bucks and others claim to have improved workforce productivity. Unfortunately, out of all the enticing advantages of outsourcing your company’s payroll, there are also some disadvantages you might meet in the middle of the road. To know more, read through the end of this article to know some of the common merits and demerits of payroll outsourcing.


Before digging deeper into the main topic of this article, it is only right you have a quick recap about the word “payroll”. Payroll is basically the total of all compensation which a business must pay to its employees for a certain period of time or date. The accounting department is usually the one responsible for this job while for small businesses, the owner usually handles it directly. Payroll can also pertain to a list of employees of a company with the amount of compensation to be given to each of them. A company’s payroll can differ from one period to another due to factors like sick or vacation pay and other variables.

Most large businesses contract with outside company to do the job of payroll for them in order to streamline the process. Employers simply keep track of employee’s attendance as well as their number of hours rendered for work and relay the gathered information to the payroll service. On the day of employee salary, the payroll provider calculates the gross amount due based on the amount of hours worked. They will also deduct taxes and other important withholdings and do direct deposit to the company’s affiliate bank.

When choosing to outsource your company’s payroll processes, it is important to do careful planning and dedicate adequate time for decision making. Document the current issues and special cases regarding payroll that you are currently experiencing. State everything that pains you so that the other party will know the areas that need appropriate solutions. Make sure you do proper and thorough service consultation to make sure you get the benefits promised. To help you with that, you can read payroll processing company reviews to get genuine and reliable feedback.

The Merits of Payroll Outsourcing

  1. Cost Savings

Outsourcing your company’s payroll entitles you to enjoy so many cost saving benefits. These come from investing less in human capital and massive reduction in workplace miscellaneous and other IT costs. Doing payroll in-house requires you to allocate enough budgets for factors such as additional tables, chairs, computers and probably a more spacious office space for your people to work with. You may also need to allocate separate budget for employment and employee training. However, if you choose to outsource the service, you do not have to worry about all those stuff. Be sure to select the agency with complete expertise as well as facilities to make sure you get the bang for your buck.

  1. Save time

Payment calculation, deductions, remitting checks, bank depositing and other payroll tasks can take up so much time. If you do such tasks in-house, you will end up consuming so much time. On the other hand, if you choose to hand the job over to a payroll processing company, you will be able to save time and spend it for other important tasks. Some payroll services offer a clock function that keeps track of employee attendance. Thus, giving you benefit of saving time out of calculating how many hours an employee has rendered for work. They can also provide direct deposit which gives you the freedom from hassle of going to the bank yourself.

  1. Accuracy

Deductions involved in payroll such as taxes can be a bit complicated. For business managers who have little to no knowledge about how taxation works, accuracy can be an issue. However, if you choose to outsource to a professional payroll agency, you get accurate calculation especially regarding tax deductions and withholdings. These agencies basically have specialists that are well experienced and are educated with payroll processes. They also see to it that taxes are paid on time leaving you worry and hassle free payroll. Be sure to only select from top payroll processing companies that are genuinely experts in the field.

  1. Increased productivity

Due to the fact that you are able to spare more time, your workforce’s productivity is relatively increased. Your company can do more work and be more effective in doing it. Payroll can be a massive work; it consumes much time and effort. Payroll processing if taken out of the plate will leave a company with a breath of fresh air. Payroll services gives you access to experts that can do the work quicker. Some third party companies also provide payroll software and cloud based solutions that enables you to complete payroll data forms that will help in making each process get done quicker with higher accuracy.

  1. Better payroll service

And as a general benefit, choosing to outsource payroll gives you a better overall service. There are things a payroll processing company can provide which you and your people in-house cannot; such as cost analysis and an up-to-date knowledge about new legislations. Due to the fact that they have the experience and expertise in the field, accuracy and reliability can be a less of an issue. If you are able to select the best service provider, you will enjoy all the enticing benefits of payroll outsourcing. Make sure you don’t rush in choosing one. Success is not always possible for those who want to get things done right away. Do careful planning and read genuine payroll processing company reviews to get a bit of a rough idea on what companies to consult.

The Demerits of Payroll Outsourcing

  1. Security risks

Outsourcing payroll means you are going to let someone from the outside of your company have access with your employees’ pay data. This is a big issue for a lot of business owners. Not many are confident and willing to be transparent with sensitive information about their entity. Although most payroll services will not do anything that will harm your company and commits to protecting your pay data’s security, there is no guarantee that it will always be like that. If you choose to outsource to a cheap service, systems have higher vulnerability to get hacked or tampered. To avoid putting your payroll data to risk, make sure to choose an agency that is well equipped with years of proven experience in providing security with its clients’ data.

  1. Lack of real-time data access

Because the payroll process is done in an outside company, instant access to data is not always possible. If you need to see payroll history or have inquiries and questions to clarify, you need to call the agency’s customer support and it may take you a couple of days or more for them to respond. To avoid this disadvantage, select a service that commits to responding with client’s issues and inquiries on a timely manner.

  1. Work quality inconsistencies

Another possible demerit that a company can encounter with payroll outsourcing is the inconsistencies in work quality. Miscalculations and errors in hours of work rendered are possible to happen which adds up to the nuts and bolts an employer is already dealing with. As a solution, make sure to make a list of the things you want to get done to make sure the payroll company sticks to certain quality of work.

  1. It can be expensive

There many factors where payroll outsourcing can be expensive. One of these is many agencies offers a service package with certain amount and some of the services included are not really necessary for a particular company. In other words, you may pay for services that you do not really need. Another factor is some agency’s price range depends on the volume of work and number of employees which means if you have a fairly large workforce, you might have to pay more. However, this is not true to all payroll providers; there are definitely cheaper ones that provide excellent service.

Let’s Wrap it Up!

So there you have it! Those are the most common pros and cons of outsourcing payroll to a third-party service. Although, there are possible obstacles to encounter, payroll outsourcing is an excellent investment. Be wise and meticulous in choosing one to make sure you get the benefits promised.

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