Payroll: In-House or Outsourced- What is Right for You?

August 31, 2016

Payroll: In-House or Outsourced- What is Right for You?

Before taking up the responsibility as an employer, it is compulsory to create an efficient payroll system that allows you to make your processes more effective. A strategic payroll system will ensure that you can catalog and comprehend your financial matters easily as well as be a great employer. Let us start off by understanding the procedures involved in initiating a good payroll system for your business.

  • Form of Payroll System

Choosing a payroll system is important to analyse whether your company is in need of an independent contractor or whether you need to hire an employee to do the task. Depending on what you choose, the taxes and the benefits of the employees will  change.

  • Paperwork

The next part comes in fulfilling the paperwork of the employees that binds them to a contract of weekly, monthly or bi-monthly payments.  It is important to do the paperwork on time and not procrastitae when it comes to documenting the payments.

  • Compensation

This includes the system that calculates the time an employee spends working and how it fits into the payment equation. Calculation of time off the job, overtime compensation, etc., are also some of the factors that will help determine the exact salary of the employee. There needs to be a plan for the retirement compensation and provident funds for the employees which will be based on their role in the hierarchy.

  • Type of Payroll System

The company will need to make a decision to choose between in-house, outsourced, or cloud payroll systems depending on the needs of the enterprise. Let’s take a look at how these models differ and the criteria for choosing each of them.

  • Running the System

Choosing a payroll system means either running the accounts yourself or choosing an accountant to do the same for the company. Selecting who will manage the financial records is an essential part of running your enterprise.

  • Maintaining Records

Maintaining records of the salaries of the employees is mandatory even after the payment has been cleared. The records should also be updated after the employee has left the company.

  • Taxes

A quarterly or annual tax needs to be paid to the government which is why the record books need to be transparent without any loopholes to evade taxes.

A payroll system is a must for every company since it ensures transparency in the ledgers and ensures that every penny is accounted for.

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What is Right for You?

A Small and Medium Sized Business (SMB) with less than 50 employees is manageable. The administrative department that includes the HR and payroll is a menial task for an employee who has a good experience in the field, and is therefore usually taken by the financial head of the team. But as the empire grows, these tasks can start depleting the core resources of the company, and this is where outsourcing comes into the picture.

Giants of the market usually let expert outsourcing consultants handle these monotonous tasks to save time and resources. Before hiring a third party for outsourcing, we must take into account the size of our business, number of employees, financial burden, and resources we own. Let us take a look at what outsourcing has to offer.

Advantages of Outsourcing Payroll Services:


 outsourcing payroll

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  1. Accuracy

Superficial errors can usher the IRS at your doorstep, and that is why it is necessary for an expert to handle the financial records of payrolls. Maintaining these ledgers can be a taxing task with myriad chances of making an error.

It is highly probable that an in-house employee may commit a mistake  which can prove disastrous to the reputation and legacy of the company. Inc. had reported that 33.33% of the companies fouled their record books in some way or the other which lead to stringent penalties.

An outsourcing payroll system offers you the accuracy, experience, and technology to manage your books with precision. Any biased mistake or error on the part of the outsourcing payroll company allows your company to take legal action against them.

  1. Time

Time is one asset that a company cannot afford to waste. Handling monotonous and time-consuming tasks like payroll services can cause frustration and can suck away the resources of the company. A growing business needs a concentrated flow of efforts that can ensure growth.

  1. Long Term Costs

Choosing between outsourcing and in-house payroll services is important. Over the two, the one that provides you long term profits should be chosen. A/B testing is the only way to ascertain which method will be best for you. In experiment A, calculate the expenditure involved in creating an in-house payroll system and in the latter experiment calculate the expenditure involved in choosing an outsourcing payroll system. The one that is profitable in the distant future should be chosen.


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These are some of the advantages of choosing an outsourcing payroll system. If you plan to purchase an outsourcing agent to conduct your payrolls, then you need to be educated on how to choose the right outsourcing agent for your company. Here are a few guidelines that will narrow your search down.

  1. Cost

The first thing that comes to mind is the cost of the outsourcing agent. Depending on the services they provide, an outsourcing agent will vary the charges. The modes of fees can be either on a monthly basis, flat fees or fees for value added services. Some of such value services include paying taxes or printing W-2forms for employees while the basic function would be just conducting the payroll. The monthly fees can vary from $20-$100 while extra $1-$10 can be added per employee depending on the company. You can choose the right match for your company.

  1. Benefits

Before coming to a conclusion on which outsourcing company to choose, make sure that you are saving time and money while investing in the outsourcing company. You need to analyse the requirements and in-house payroll efficiency of your company to benchmark it while comparing it with the payroll service of outsourcing companies. Transparency is the key to choosing the right outsourcers. Make sure that your employees have complete access to their logs and can monitor them at a moment’s notice. Accuracy should be the key component of these payroll outsourcing companies. The slightest errors could halt the services of the company and put them in a lawsuit. Keep a tab on the reputation of these companies before you pick one of them.

  1. Reputation

It is obvious the reputation, experience and license of the payroll services needs to be acknowledged before the services are rendered. Keep track of their previous clients, take reviews from peers and check the testimonials before you take the right step in hiring an agency to handle your business.

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Outsourcing a part of your business can be disconcerting since you have to put your trust in a person or agency to handle a part of your creation. Thus always make sure that this agency is trustworthy and reliable. An SMB with a dynamically increasing scalability model will definitely need to implement a third party payroll service for satisfying their monotonous needs. A transparent and credible firm with ample experience and reliability should be the one preferred by companies.

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August 31, 2016

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