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What To Choose Between Internal And Outsourcing Payroll

As a Business Owner, it will be your duty to ensure that the employees receive their payments on time. That is why every company focuses on establishing a proper payroll system to keep the business task force running.

However, the debate of in-house payroll vs. outsourcing payroll has been confusing for many business owners. Whether to choose in-house payroll processing or outsourcing, the process will depend on several factors, and therefore, you should know them first before making your final decision. This blog may help you understand those points.

Difference between In-house payroll and Outsourcing payroll

In the case of in-house payroll processing, one has to consider multiple approaches. For example, your accountant may use printed payroll reports and sheets to do it manually. What people usually do is leverage programs they already have, like Excel. The reason is that these programs offer pre-formatted templates.

Alternatively, you can also choose to use industry-specific software or an application.

In addition to paying employees, one has to do manage other tasks as well like:

  • Collecting information about employees
  • Calculating overtime and wages
  • Managing tax deductions
  • Depositing and withholding appropriate taxes
  • Maintaining records
  • Printing and distribution of paychecks

On the other hand, in outsourcing payroll, you have to partner with a service provider who can handle almost all types of payroll-related compliance and administrative tasks. For example, you may hire a vendor to look after tax filings and for payroll processing.

If you want to save time and avoid risks associated with in-house payroll processing, outsourcing payroll can be a better option.

Benefits and drawbacks of an in-house payroll

Let us first discuss the benefits of an in-house payroll system.

  • You can have more control over sensitive data that includes the names of the employees, their salaries, bank account information, and social security numbers. This information can be safely stored on your company’s server.
  • It will be hassle-free to offer payment to a vendor for providing payroll services. For one employee, the vendors generally charge about an annual fee of $150-$250.
  • If your business is in construction, having an in-house payroll system will be more reliable. You can use specific job costing software that can be integrated with the payroll system.
  • There will be more flexibility.

However, as there are so many activities involved in managing in-house payroll systems, it has some disadvantages.

  • An in-house payroll system is a time-consuming task, which can take a lot of time from your business schedule, and you may not properly focus on other tasks. According to a survey, it takes about 253 hours per year. 
  • If you cannot do it yourself, you will have to pay a staff to run the system. Providing this payment and other fees like implementation, software, and maintenance can be more challenging for a small business.
  • The payment process can get delayed due to unavoidable risks and errors. It can easily frustrate employees and affect their morale.
  • If you fail to comply with tax obligations and deposit less than the required amount, you may face hefty fines. If your tax deposition is late by 16 days, you will have to pay the penalty at a 10% rate.
  • If you give all the responsibilities to one of your employees in your company and do not have enough control, there may be no guarantee that your data will remain safe.

Benefits And Drawbacks Of Outsourcing Payroll

If you want to assess every available option, you should also know the pros and cons of outsourcing payroll. The general pros include the following.

  • You can significantly reduce the chances of paying tax fines and penalties. Generally, payroll service providers take the responsibility of collecting and paying the tax liabilities of both the company owner and employees.
  • In the payroll service providers, professionals use advanced technology for calculations. That is why there occurs more accuracy in calculations, and chances of common errors are eliminated.
  • You can also save considerable time and invest that in planning to generate more revenue.
  • Paying your employees within the time constant will also be possible. It will lead to employees’ satisfaction & a good work environment.
  • When you are giving accurate and timely payments, you can remain compliant with various government obligations.

However, this system also has some drawbacks, which are as follows

  • You will need to pay the fee of the service provider. The annual charge can be $150-$250 for each employee.
  • If you do not clarify what is included in the full service, you may bear hidden costs like courier and delivery charges or tax filing fees. If something happens, you may have to pay for a service you do not require.
  • If there occurs a lot of turnover at the payroll service provider, your business may get affected significantly.
  • Remember, you will be working with an outside agency. Thus, if any mistakes or issues happen, it may take a more extended period to resolve them.
  • You will not have any control over your employee data.
  • The payroll company can also divert your funds.

Which One Should You Choose?

Both outsourcing and in-house payroll systems can help you manage one of the most vital functions of your business. The suitability of a payroll system depends on several factors. If you want to have more control over the whole process and have no intention to spend additional money, you can choose the in-house option.

  • On the other hand, companies who want to avoid the compliance and complexities involved in the process and want to depend on an expert should go for an outsourcing option. 
  • Before you choose your system, you have to know and understand all the benefits and drawbacks of both. If you find a solution that suits your business requirements, you can make your final decision.


Many payroll service providers have been offering top-quality services to their clients. Make sure you always associate with the best-in-business, so your payroll services are managed and integrated into a single place.

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