A Quick Guide to Payroll Outsourcing


Payroll Outsourcing Services has become one of the most popular buzzwords in the corporate sector. Irrespective of the size of the organization, all business owners focus on faster growth, and that requires more tangible and intangible investment in productive tasks.

Today, we will give you a quick introduction about what payroll outsourcing is, how it works, how it is different from in-house payroll processing, the benefits and risks involved, and more…

What is Payroll Outsourcing?

As the name suggests, payroll outsourcing is let an external payroll management company handle payroll tasks for your company on a pre-defined budget. The said company becomes your payroll department and handles the monthly processes while allowing you to focus on productive, revenue-generating tasks.

How Payroll Outsourcing Works?

Once you’ve chosen your preferred payroll outsourcing services provider, you’ll submit a payroll report to them. The payroll outsourcing firm then processes your data on the basis of this report.

What’s in the payroll report?

The payroll report submitted by you comprises information such as the total number of employees, their benefits, hours worked, paid and unpaid leaves, overtime, vacations, etc. In case your staff has both salaried and non-salaried employees, the report should also include their annual and hourly compensations, respectively.

Once all the information mentioned n the report is fed into the payroll company’s system, they can start the payroll processing. From this point onward, all the responsibilities of payroll calculation, distribution, and management are handled by the payroll outsourcing company.

Payroll Processing: In-house vs Outsourcing

The first difference between the in-house payroll process and payroll outsourcing is that the latter is less stressful. On top of that, in-house payroll processing also takes a lot of valuable time of employees, the time that they would otherwise invest in productive tasks.

Payroll outsourcing also proves to be more cost-effective than in-house payroll processing. And that’s because the payroll process in itself is a non-core process, and thus, doesn’t directly add to the growth of the company.

In-house payroll processing is also prone to human errors, and that can affect your employee experience and may even lead to employee dissatisfaction, high employee turnover, and even legal action. A payroll outsourcing company can help you avoid such risks.

On the other hand, payroll outsourcing is not completely risk-free. And that’s exactly why you need to do a lot of research and find a reputed and trustworthy payroll outsourcing company. But all in all, when you compare in-house payroll management with payroll outsourcing, outsourcing makes more sense for businesses of all sizes.

Benefits of Payroll Outsourcing

Apart from the benefits that we discussed in the in-house payroll processing vs payroll outsourcing section above, there are other benefits attached to outsourcing your payroll to experts:

Compliance: staying updated with compliance, legal, federal, statutory, national & regional policies, rules, and regulation is an ongoing and cumbersome task. It requires complete attention at all times. A slight change in any policy requires you to change the whole employment agreement. Not conforming to compliance policies can lead to legal troubles and even heavy penalties.

Payroll outsourcing companies make it a habit to stay updated with all the rules and regulations involved in terms of tax, labor, accounts, and other policies to stay in the lead and offer consistent service quality at all times. As a result, payroll companies help you stay compliant at all times and minimize legal risks of various kinds.

Use of Advanced Technology: All organizations require payroll software for timely, automated, and accurate salary disbursement. But creating your own, in-house software requires a lot of time to get all the features right. If you choose to buy an off-the-shelf payroll software, the cost involved may not be at par with the features you need. On top of that, you’ll need to keep it updated for its upgraded versions to maintain its stability.

Choosing to go for SaaS-based software doesn’t give you the ownership, but you’ll get regular updates as and when there a change in the version or a new tax amendment is there. But then again, choosing software is also a hectic and time-consuming job.

This is where payroll outsourcing companies make things even more stress-free for you. Technology-driven payroll firms have their own payroll software. They keep their software updated to offer an unmatched level of service quality. In this way, you get an added advantage of cutting-edge payroll management technology without worrying about finding the best-suited payroll software at a good price.

Risks of Payroll Outsourcing

The most important factor that concerns organizations and business owners is that they have to give control to someone else. But when you introspect about it, it’s not a risk, but a part of you that doesn’t want to give control to someone else.

Payroll management, in the hands of an expert and experienced payroll outsourcing company, can help you take charge of other business functions.

Another risk is not getting the right services and ending up paying more for getting fewer things done. It mostly happens due to lack of proper research, choosing the wrong payroll management firm, or not defining your requirements clearly, or a combination of these reasons.

The key lies, as you can understand, in doing a thorough research and verify a company’s claims with industry-specific review websites. Attention to detail will also help you find the right payroll management partner.

Things to Look for in a Payroll Outsourcing Services Provider

While choosing a payroll outsourcing firm, you need to consider the following factors:

Features: Payroll processing is not limited to calculating salaries and taxes, it’s also about how versatile and responsible the firm is in terms of compensation administration, benefits calculation, garnishment payments, incentive calculations, etc.

Employee Self Service: Employee self-service is an essential part of payroll outsourcing where your employees can log in and see their wages, compensations, deductions, incentives, etc. in one place.

Trustworthiness: Trust is primarily built on two parameters: experience and reputation. You need to find a payroll management company with a proven experience in handling the payroll of your industry with utmost diligence.

Security: with all the information of your employees at their disposal, your chosen payroll management firm must have a secure system where all your data is safe and confidential. 


Many business owners are seeking payroll outsourcing services, but they lack direction in terms of how to start and what to look for. This quick guide will help you make an informed decision.