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March 24, 2023
As a small business owner, managing your payroll is one of the most important aspects of running your business. Paying your employees accurately and on time, maintaining compliance with state and federal regulations, and managing the tax aspects of payroll are essential activities that keep your company running smoothly.
But not every small business is equipped to manage the complexities of payroll in-house. Instead, outsourcing your payroll and other HR tasks to an on-demand team of professionals can save your company time, money and mistakes.
In this article, we’ll cover the key differences between in-house and outsourced payroll services— and which may be best for your small business.
In-house payroll services refers to managing all aspects of your payroll within your small business. This means you, or one of your employees, will be fully responsible for calculating and processing payroll for every pay period, handling all payroll taxes, and maintaining compliance with all relevant laws and regulations.
Unlike outsourced payroll, in-house payroll management has little to no startup cost. You don’t have to pay to set up your services with an outside provider, and if you’re doing payroll manually (as opposed to using an online tool), it’s free to manage.
In-house payroll at small businesses is often handled by just one professional or a small team of professionals, rather than a dedicated agency. In the case of single-member, in-house payroll teams, often that dedicated professional has other duties, like managing the office or handling HR-related tasks. And in many cases, the business owner themselves completes payroll.
But in-house payroll management can come at a steep cost in the long run. A report by Intuit revealed that 25% of all workers have had an error on their paycheck. And another report by Kronos showed that nearly half of workers will begin looking for a new job after just two paycheck errors! These numbers show how payroll mistakes, like the ones that often occur when inexperienced or overworked individuals are handling this essential task, are both costly and inconvenient — for you and your employees.
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So, while managing your payroll in-house may seem like a cost-effective option in the short-term, there are several disadvantages. If the person in charge of payroll makes a mistake, you could be liable for penalties, fines and legal trouble. And if these kinds of mistakes happen often, you may lose your top talent.
That’s not the only disadvantage of in-house payroll management. Payroll is an extensively time-consuming and tedious process that requires significant attention to detail. This can be a challenge for small business owners who may already be juggling multiple responsibilities.
At first glance, outsourcing your payroll services may seem more expensive and complicated than handling the task in-house. But often, the opposite is true!
Outsourcing your payroll services refers to hiring an external team of professionals to manage your payroll technology, accounting, taxes, compliance paperwork and payments. Your outsourced payroll team will often provide your small business with a payroll portal where employees can update their information and track payments, while the team externally manages the day-to-day tasks related to payroll.
According to a report by the National Small Business Association, 45% of small businesses use a payroll service just like the one mentioned. And for good reason. Outsourcing payroll to a professional service provider is an easy way to boost your business’ efficiency and bottom line.
With outsourced payroll services, you can hand the task of payroll management to a team of on-demand experts. For most small businesses, hiring an extensively experienced payroll professional full-time, and covering the associated employee benefits, can be cost-prohibitive. Especially if the professional is a highly sought-after Certified Public Accountant or bookkeeper with valuable tax experience. But by working with an outsourced payroll team, you have access to a higher caliber of professional, at an affordable rate. Plus, your outsourced team can grow right along with you — without you needing to hire and manage additional payroll professionals as your company grows.
Outsourced payroll providers can also help ensure compliance with state and federal regulations, reducing your risk of costly mistakes and unforeseen penalties. Because they have the extensive resources needed to double-check every number and form, you can have the peace of mind that comes from knowing your payroll is both accurate and compliant.
There’s one more big benefit to outsourcing payroll — the time it saves both you and your internal team. By delegating payroll management to an outside provider, you can focus on other areas of your business that require your attention, like customer service, acquisition or product development.
Consider partnering with a professional service provider that can provide you with the expertise, support, and resources you need to manage your payroll with ease. In the end, it might just be the decision that takes your business to the next level!
This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.
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