What is the difference between Outsourcing and In-house Payroll?

Being one of the most important functions in any organization it involves calculating and reporting all benefits, compensations and deductions that forms part of the payroll for employees. All companies are required to maintain an effective management system to handle their payroll. To do this effectively, two options are available. Outsourcing the task or employ staff capable of handling it in-house.

Outsourcing the payroll has both benefits and disadvantages for the employer. This method implies that an expert company is selected to do the payroll. The biggest advantage gained from this method is the cost effectiveness. It eliminates the need of employing accountants and IT staff to design and implement the process. The outsourcing costs are far less than maintaining a specific department to complete the payroll on a monthly basis. Another benefit is that outsourcing allows the company better budgeting and keeping track of expenses and earnings. Many expenses done in-house tend to get lost and unrecorded. Due to the fact that payroll reporting has a tax reporting element attached it is better to pay experts trained in the process to complete the payroll and streamline the process.

There are some risks involved in outsourcing a payroll function as this involve sensitive and private information of the employees. It could result in resistance to the process by the workers feeling that their privacy is compromised. Not using the best firm to do the payroll could result in the payroll being inaccurate and not in compliance with current laws. Checking the track record of the company selected is very important in this task.

Choosing to do the payroll in-house was the domain of large companies due to initial set-up costs and implementation. This has changes a lot in the past few years with new software becoming available that is user friendly and easy to use. This reduced the cost implications substantially for the company making it more viable.

In-house payroll completion eliminate the fees normally charges by outsourcing companies. They normally charge a base fee and an additional fee per paycheck and fees for other paperwork related to submission for tax. Reports required is usually another fee charged. The first year of using the outsourcing company carries higher fees than later period as they have to setup the system for the specific company.

In-house payroll preparation means better control of the information in the process and the privacy of sensitive information remain inside the company and not with third parties. Last minute adjustments are easier to include such as overtime or shift adjustments. This is achieved without the need for additional fees to the outsourcing company. Having information in-house also allow the company owners or executives to make faster financial decisions without having to wait on information requested.

The costs associated with in-house payroll preparation are a one-time software license fee and the annual support and maintenance contract offered by the software company. Apart from staff managing and maintaining the payroll no other costs are present. Some software companies even offer flexible payment plans. Various ROI studies in the past have proved that doing payroll in-house can pay for itself in just a few years depending on the number of employees and how often paychecks are issued in a given year.

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Until next time.