Why Businesses Should Outsource Payroll in 2024

Thinking to outsource payroll in 2024? Here’s a comprehensive look at what payroll outsourcing means for your business and when it’s most beneficial

It’s the end of the month; it’s payday. Yippee for the workers; long nights for you.

You’re at it again, locked in the office verifying timesheets, calculating figures and filling reports.

Payroll processing is making you stressed out every month, but you wouldn’t admit that, because you’re the superhuman boss who can do everything. But as it turns out, there’s an easy way out of this tedious situation —73% of organizations have turned to it. What is it?

Outsourcing payrolls can make your payroll calculating activities and other payroll-related exercises more efficient. It has worked well with many businesses, small or large. But should you follow in their footsteps and outsource payroll for your small business?

In this article, we’ll dive into the different outsourcing payroll services, as well as the outsourcing payroll pros and cons, so you can decide what a modern-day entrepreneur truly needs.

What is Payroll?

In simple terms, payroll is the list of employees and the money the company owes them for their services.

It begins with the integration of the workers into the payroll system and ends with year-end tax accountability.

What Is Outsourcing Payroll Service?

Payroll outsourcing is a business practice where you contract a third-party company to assist you with accounting services and other payroll operations such as tax reporting and compliance. In doing so, you can ensure your workers can receive their wages on schedule and avoid payroll mishandles.

How Does Payroll Outsourcing Work?

When you’re working with a third-party company, you must be ready to share some inside data.

In this case, the payroll service provider will need the following workers information:

  • Contact information
  • Job title
  • Hire date
  • Pay rate
  • Contract type

If your employees use time-tracking tools or time cards, your payroll provider will need access to that information as well.

Below are the steps to payroll processing usually administered by payroll services:

  • The setup-up phase is where you provide the third-party company with essential data and confirm the rates and hours for each worker.
  • In the pay period, your payroll provider will calculate the number of working hours for every employee. You will provide the data and confirm the information for them.
  • When the gross pay is determined, your payroll provider will make the tax deductions (if applicable).
  • After calculating the net pay, your payroll expert will make the payments and deposits.
  • You will then receive payroll reports for every pay cycle.

Is Outsourcing Payroll a Good Idea?

If you ask us and other business consultants, we will tell you, “It’s a definite yes!”

While many companies still do their payroll processing to this day, we wouldn’t advise it. Payroll accounting is a non-core function that is better off in the hands of payroll virtual assistants, so you can focus on the bigger picture.

Let’s take a look at some of the important benefits of outsource payroll services.

  • Data Protection

    The prevalent perils of in-house payroll are theft and embezzlement. But with payroll outsourcing, you wouldn’t have to worry about that. Your sensitive data is well-guarded and stored in a secure server. As a result, you’ll be safe from any data breaches.

  • Reduced Admirative Burden

    When you’re unloading your payroll processing to a remote professional, you’ll be relieving yourself of the repetitive administrative burden which can eventually lead to burnout.

    Without the extra work, you can now redirect your attention to strategic operations. Outsourcing frees up your time for more critical projects. That’s outside giving you some peace of mind knowing that you have an expert handling your payroll business.

  • Cost-Saving

    Sure, having a payroll process is costly. However, the cost of processing your payroll can be greatly reduced by outsourcing.

    This is because you’ll be freeing your internal team to be more productive by focusing on the core functions. Outside of that, payroll outsourcing keeps you on the timeframe, which will help you avoid fines and other penalties.

  • Avoid Penalties and Mistakes

    Speaking of keeping on schedule, government compliance standards often vary and are extremely complex. This will be difficult to handle when you’re juggling other activities on the side. Therefore, you will be bumping into penalties due to mistakes and late disclosures, which will be expensive.

    Employing a payroll specialist ensures you’re always in the know and up-to-date with new statutory requirements. They will have no problems meeting deadlines and complying with legal filings. Thus, the chances of a mistake are very slim to none.

  • Ensure Efficiency

    When it comes to payroll, last-minute modifications are unavoidable. Lucky for you, payroll service providers are quick to respond, ensuring efficiency.

    Let’s not forget that these are experts. They leverage new payroll technologies and have tried and tested practices to support your payroll processing needs. They can even offer extra services such as payroll health checks and reporting. This can promote accuracy and reduce errors, saving you resources and ensuring timely compliance.

  • Access to a Team of Experts

    Without massive financial pressure, outsourcing payroll gives access to a team of experts who have both the skills and experience.

    Apart from addressing employee issues, workers' compensation and other human-resource-related concerns, you have the confidence of having a team who can back you up whenever and wherever. This is an added value to your business.

  • Standard Compliance

    As we mentioned, navigating the intricate details of payroll processing, as well as the changing legislation will give you a brain workout. A reputable payroll service provider that knows the ins and outs of administering your payroll will give you peace of mind. They will be your one-stop shop for standard compliance reporting.

What Are the Risks of Outsourcing Payroll?

No matter how awesome outsourcing is in lightening your workload and reducing costs, there are still some disadvantages of outsourcing payroll.

For starters, payroll services can be costly, considering the additional base fees and pay cycles. And although outsourcing payroll services is efficient, delays in processing and receiving are still unavoidable.

This is why choosing the right provider is very critical to making the most of outsourcing your payroll. Pick someone in the same time zone, and a provider who has payroll proficiency.

Outsource Payroll Services

Yes, you can hand over the entire payroll responsibility to a third party, but here are the most common outsourcing payroll and HR services responsibilities best thrown at your third-party provider:

  • Account setup
  • Timesheet verification
  • Payment method setup
  • Salary calculation
  • Deliver pay
  • Integrate security measures
  • Ensure compliance with state regulations
  • Remit taxes
  • File payroll reports
  • Calculate deductions
  • Manage payroll taxes
  • Administer checks
  • Report to client (as agreed)

Outsourcing Payroll Costs

There are several ways an outsourcing payroll company can charge their clients, but here are the two most common approaches:

  • Per Employee Per Month

    In this pricing model, you are billed according to the number of your employees on a monthly fixed rate.

    For example, you have 80 employees, which means you have a set fee multiplied by 80 for your provider's monthly service. This pricing is much more efficient for a company with a steady headcount.

  • Fixed Price

    Under fixed pricing, a company pays a preset fee for the payroll services, regardless of the number of employees. This pricing model is more predictable and a lot easier for budget planning, perfect for startups and small businesses that want to save money.

Overall, your payroll outsourcing costs will highly depend on 3 important factors; number of employees, payroll frequency and services outsourced. In many cases, annual base and processing fees are always present in your outsourcing costs.

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In a Nutshell!

There are so many reasons why you should outsource your payroll processing. But of course, guaranteed payroll management success can only be realized if you partner with the right service provider.

Look into the level of convenience, financial savings and even read outsourced payroll services reviews —do your homework. Outsourcing payroll should not be taken lightly!

Reach out to us and we’ll be happy to offer you helpful guidance in your outsource payroll journey.