Process Payroll In-House or Outsource? – 5 Factors to Consider

When your payroll process is efficient and accurate, you safeguard your business against compliance issues and improve employee satisfaction through timely payments and easy self-service access to employee information.

Process Payroll In-House or Outsource? – 5 Factors to ConsiderAlthough some businesses choose to adopt an entirely in-house approach, this article will explore five key factors your business should consider when weighing the pros and cons of outsourcing to a trusted payroll provider. From budgeting and time spent to the benefits of increased security and automated processes, we’ll help your business determine the best way to approach payroll now and in the future.

Budget & Time Spent

Payroll involves a wide range of tasks outside of simply paying employees. When payroll is processed in-house, it requires time spent recordkeeping, withholding/depositing necessary taxes, calculating overtime, managing deductions, and much more.

Recent data shows that most business owners spend nearly five hours per pay period processing payroll. This doesn’t account for follow-up questions and correspondence with employees, or other tax processing tasks. Just this baseline time commitment amounts to 21 days a year of total work time, which could be dedicated to other core business tasks. When compliance concerns are added to the payroll equation, the process becomes even more challenging and time-consuming, especially as businesses attempt to adapt to regulatory changes or adhere to Affordable Care Act (ACA) guidelines.

In some cases, businesses opt to manage payroll internally to cut costs, but it is almost always less expensive to outsource payroll to a qualified provider. This is, in part, because in-house payroll processing usually requires salaried or hourly payment to HR staff, a bookkeeper, plus software costs and any necessary training. 

Especially for growing businesses, in-house payroll processing is unlikely to be a sustainable approach. Outsourcing allows your business to hand off tax filing, benefits administration, timekeeping, recordkeeping, and payroll processing to qualified experts so you can focus on essential day-to-day operations and reduce overall costs.

Manual or Automated Processes

Especially for businesses with hourly employees, in-house payroll processing can be complicated by the need to track and manage PTO, overtime, paycheck calculations, and accuracy regarding hours worked. In many cases, this requires either manually time tracking with spreadsheets or relying on software that may or may not meet all of your business’ operational needs.

By outsourcing to a qualified payroll provider, you can streamline this process, enjoying automated software that allows employees to enter (and review) their hours, PTO, and other features. This has the added benefit of increasing company-wide transparency and employee satisfaction. Additionally, outsourced payroll means easy payments to employees through direct deposit or other preferrable options – forgoing check printing and mailing costs.

Outsourcing can also automate payroll calculations to withhold for benefits, taxes, and future filing at the local, state, and federal levels.

Tax Form Preparation & Filing 

Through the in-house processing of payroll tax forms, you’ll need to prepare, distribute, and mail W-2s, 1099s and any other applicable forms to each individual employee within your business. You’ll also need to monitor deadlines to ensure timely submission of all required forms.

In contrast, by outsourcing payroll, your year-end tax documents will be automatically prepared and can easily be shared with employees digitally or by postal mail. This lowers costs, reduces time spent, minimizes human error, and eases burdens around tax season.

Security & Recordkeeping

Many businesses assume outsourcing payroll increases security risks. In actuality, qualified payroll providers use high-level security tools, access limitations (based on role), password protection, and encryption measures that reduce the likelihood of security issues.

With in-house payroll processing, sensitive information could be inadvertently compromised through human error, or remain vulnerable to fraudulent activity like stolen Social Security numbers or salary data leaks. As a consequence of these concerns, some businesses revert to manual and paper-based approaches, but – as we’ve discussed – these are also prone to create issues with inaccurate recordkeeping, compliance violations, and other impediments to a streamlined payroll process.

Access to Experts

Invariably, in-house payroll processing leads to questions about payroll-related rules, regulations and protocols that can be overwhelming to business owners or even experienced HR personnel. This is, in part, because labor laws and practices are frequently shifting – whether it’s related to overtime, pay frequency, minimum wage, or paid leave requirements. Managing all of these concerns within a manual payroll processing system, or with inadequate software and staff support, can create unwanted compliance issues and financial penalties. 

Qualified payroll providers keep a host of certified HR experts on staff to answer questions, provide guidance, and troubleshoot issues that you encounter at any stage of your payroll processing. Of course, when using the payroll provider’s own software tools, the likelihood of errors or delays is significantly reduced due to the provider’s familiarity and aptitude with the payroll tools being used. Most importantly, payroll providers remain up-to-date on all labor law policy changes that affect payroll, allowing you to enjoy peace of mind about your company’s legal compliance throughout each year of service.

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Streamline Payroll with Workforce PayHub

In-house payroll processing can lead to recordkeeping errors, compliance violations, delayed payments, security risks, and other issues that prevent your business from focusing on its mission and core business operations. Workforce PayHub offers a comprehensive Payroll Solution that adapts to the needs of your business and features an employee self-service portal so your employees can monitor pay statements, W-2s, PTO and more directly from their smartphone or other devices.

Ready to see our Payroll Solution in action? Contact us today for a free quote.

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Eric Jones
Basic Payroll Options When Setting Up a New Business Partnering with Small Businesses in Michigan
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