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Managed In-House Payroll vs Outsourcing Payroll Services

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The age-old question: what are the benefits of in-house payroll vs outsourcing? It’s a question we get asked time and time again here at Access PeopleHR. As an SMB owner or manager, a major responsibility is taking care of your team – and ensuring they get paid accurately (and on time) should be among your top priorities. 

When it comes to ‘payroll in house vs outsourcing’, you may think we’re a little biased (considering we’re a payroll bureau provider with over 1,000 years’ combined experience), but our first-hand experience with payroll approaches has given us a valuable insight into their advantages and disadvantages. 

We’ll be the first to admit that outsourcing may not be right for everyone. Choosing between the two services is vital to how HR processes run, so it’s important for your business to take a step back and consider the pros and cons of both. 

With that in mind, this is our attempt to be as objective as possible on: 

  • Pros and cons of in-house payroll 
  • Pros and cons of outsourced payroll 
  • The differences between the two  
  • How to determine what’s right for your business 

After reading, you should be better informed to decide on what payroll approach is best for you. 

What is managed in house payroll?

Managed in-house payroll refers to payroll processing that is handled internally. Those responsible for payroll are considered employees, and they are paid through the same payroll system. For larger companies, Human Resources or financial departments are often responsible for in-house payroll clerks. But with SMBs, business owners or other staff members will normally be handed this responsibility.  

What are the pros and cons of in-house payroll?

There are pros and cons to in-house payroll services. Keeping it in-house will give you full transparency and control over the entire payroll process. Yet, managing the process in-house, particularly without the use of a specialist, does increase your chances of error – not to mention the added workload it will present for the member of staff tasked with the responsibility. 

Let’s now explore the pros and cons of in-house payroll further:

Pros Cons
  • Timely payroll, with a solid return on investment (ROI)  
  • Total control over payroll processing  
  • Flexibility over last-minute changes prior to a payroll run  
  • Ability to analyse compensation and plan for future business growth  
  • More accurate data through integration with internal HR, accounting, and time and attendance systems  
  • Ability to deliver e-payslips and other documentation via your employee self-service software 
  • Extremely time-consuming - If you have other organisational responsibilities, business progress can be impacted  
  • Error-prone – Payroll is a big responsibility for one individual, particularly if that person is inexperienced  
  • Can be expensive if you hire a specialist in-house to manage payroll as their sole responsibility  
  • Compliance challenges if mistakes are made  
  • Integration challenges, if looking to configure multiple systems 

What is payroll outsourcing?

Payroll outsourcing is when a business hires a third-party company or individual contractor to process payroll. Whilst the outsourced payroll process varies between providers, most solutions will process payroll automatically based on timesheets, employee data, payroll taxes and other remuneration data.  

What are the pros and cons of outsourced payroll?

When weighing up all your payroll options, it’s important to consider the pros and cons of outsourced payroll. As we’ve mentioned throughout this guide, outsourcing isn’t for everyone, and the below points should help you form an opinion on what’s right for your business:

Pros Cons
  • Minimal investment upfront  
  • No overheads associated with specialist staff  
  • A flexible approach that can handle peak periods in your business  
  • No issues around staff being absent or leaving  
  • No need to invest in ongoing training or keeping up-to-date with changing legislation  
  • In the event of inaccuracy, there is a clear channel for reimbursement  
  • If dissatisfied, you can change provider fairly easily  
  • Risk of fraud (committed internally) is eliminated 
  • Cost of outsourcing over time can be a large business expense, especially if hiring a consultant  
  • Worry of choosing the wrong provider that doesn’t meet your business needs/expectations  
  • Possible loss of control over important company data  
  • May lead to poor visibility, leading companies to be uninformed about costs and month-on-month evolutions 

 

Most of these drawbacks can be mitigated if you do your research. Always vet your shortlisted vendors and look for things like qualifications within the Chartered Institute of Payroll Professionals (CIPP) and Payroll Assurance Scheme (PAS). Closely evaluating case studies and customer feedback is also a good indicator of how trustworthy, safe and reliable your selected provider is. 

What are the differences between in house and outsourcing payroll?

The main difference between in-house payroll vs outsourcing is who handles it. In-house payroll will be calculated internally whilst outsourcing will involve the use of an external provider. 

With in-house payroll, several approaches are considered. As we’ve briefly mentioned, you, an employee or your bookkeeper can do it manually using paper-based solutions like timesheets and printed payroll reports. Also, it’s not uncommon for companies to leverage programs they already have – like Microsoft Excel, which provides pre-formatted templates. Additionally, you may choose to hire someone in-house (as an employee) to solely handle HR and payroll responsibilities.  

With outsourcing payroll, you partner with an external payroll provider who handles as much (or as little) of the administrative and compliance tasks as you’d like. You may just want a vendor to process payroll and take care of tax filings, for example. On the other hand, you may wish to offload the entire process, allowing you to focus on wider business responsibilities. 

What you should consider when choosing between in house and outsourced payroll

Five top considerations for choosing payroll in house vs outsourcing:

  • Company size – The larger you are, the more exposed to risk you become. Assigning payroll to one individual (whether in-house or outsourced) can be problematic for a larger company. 
  • Budget – How much are you willing to invest in payroll services? Is the cost of getting it wrong an expense in itself? 
  • Compliance and data security – Ensure employee data and payroll information are secure by evaluating compliance and security policies. 
  • Payroll accuracy – Evaluate your existing track record of payroll accuracy as well as your payroll providers to avoid issues later on down the road. 
  • Internal resources and availability - Take into account how much time you and your team spend processing payroll on your own. 

With these guidelines in mind (and the pros and cons highlighted throughout this article), you should be in a better position to evaluate whether outsourced payroll is the right option for you – or, indeed, whether you continue to manage the process in-house.  

Next steps

Making a choice between in house payroll vs outsourcing is a difficult task. We recommend making a checklist of requirements that your business needs (and consider your existing resources) before progressing further into your decision-making. It would be helpful to include your senior team to gauge their thoughts, too.  

Keeping payroll in-house is a good solution for companies that want to maintain more control over the process. It’s also a good option if you have someone internally who can realistically manage the workload without exposing themselves to error. Finally, if you don't have the budget to invest in external support, then keeping things in-house would be the most viable solution. 

On the other hand, if you are concerned about the complexity, compliance and workload associated with managing payroll yourself and see outsourced payroll as an investment (rather than an expense), then this approach should be a top consideration for your SMB. Overall if a business is smaller, outsourcing payroll may be the most convenient option. 

If you’d like to explore your outsourcing options further - after learning more about the pros and cons of the different approaches – check out our page on our payroll outsourcing services. There you’ll find a little more about our Access Payroll Services (APS) – which is a bureau that helps you manage part (or all) of your payroll processes. Of course, don’t hesitate to speak to an expert about any of your HR system requirements.  

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