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Outsourcing Payroll Pros and Cons

April 30, 2015 by Ed Becker

When your business starts to grow and you have more than a couple employees, you may think about outsourcing your payroll to a service provider. Everyone has heard of ADP and many large and small companies use such services. But how can you know if it is right for your company? Here are some pros and cons about payroll outsourcing so that you can make an informed decision.



  • Cost effective and more efficient

The average business that outsources payroll spends 18% less then companies that process it in-house. Outsourcing payroll tends to be more efficient for everyone; you can upload data in a very short time without having to do calculations and other tasks manually.

  • Payroll taxes filed and paid on time

Payroll services automates your tax filing dates and payments, ensuring they are on time. The IRS states that 1 in 3 businesses get penalized for payroll errors, adding up to $4.5 billion in penalties last year. Outsourcing takes this extra task and stress off your plate.

  • Easy access to data

Using a payroll service with cloud based software allows you to easily access employee information anywhere you need to. Many providers also have custom report options and analytics.

  • Self-serve for staff

The cloud software also gives employees access from anywhere to retrieve pay stubs and personal information. Some software even allows them to make changes to their W-4 forms and enter time off requests.

  • Easier for new staff

With easy access to employees, new hires will be able to navigate the payroll system and learn it much faster than paper intensive in house systems.



  • Security and accuracy

Payroll security is extremely important. It contains very sensitive employee information, ensuring that you keep it secure and private is a huge issue.  You should ask many questions to the providers you are considering and do not be afraid to ask for and check references of other clients.

  • Loss of control

Yes, you will lose some control of this aspect of your business. But delegating is part of growing and doing what you are best at is what keeps your business growing. However, with cloud based services you still have access to see exactly what is happening even if you do not have absolute control.

  • Being charged for services unneeded

When you begin with a new payroll service provider ensure that your contract only includes the services you need and want. Check your invoices regularly for accuracy and to ensure that you are not being charged for services you do not use or need.

  • Ultimate responsibility

Even if you outsource, you are still responsible to provide the correct and proper information to your provider. They can take over the service for you but they can only do it accurately according to the information you give them. If incorrect information is given, they are not responsible for the errors, late fees or penalties. You are.

  • Errors take longer to remedy

Having an off-site payroll provider can make correcting errors a longer process. It is not as simple as walking into the payroll office and showing them the mistake to correct it. You have to notify the provider of the error, send documentation and wait for them to correct it.

Outsourcing your payroll is usually a good option for small businesses. There are pros and cons of every decision in business, but in this case the benefits usually outweigh the possible negatives. Using an outsourced service for payroll can reduce many stresses for your business.



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