The Pros and Cons of Payroll Outsourcing

When you consider starting a business, there are multiple things to consider in determining how the business will operate. One of the first things to consider is whether you will maintain your payroll function in-house, or hire a third-party firm to provide those services.

We understand that, first and foremost, your budget is crucial in making these decisions.

If you are a small business, hiring a third-party firm could be difficult from a financial perspective. Since payroll may be a major expense for your company, keeping it in-house may be the best decision. However, when running your small business, there will be many other things that have equal importance. Hiring a third-party firm to keep track of all compensation and benefits could be incredibly helpful during this startup phase.

If you are in the market for and have set aside a budget for outsourcing, there are definitely pros to this decision:

  • You are able to focus on the core purpose and operations of your business, instead of being distracted by the time consuming and complex issues that revolve around employee compensation.
  • This third party firm could be beneficial in helping design and administer a compensation and benefits program for your employees.

If you decide to keep your payroll function in house, it is important to assure that anyone charged with the task of payroll is qualified, competent, and professional, since your employees are a vital part of making your business operate on a daily basis.

If you choose to outsource, the cost is usually 50% of the cost of keeping it in-house, mainly because you don’t have to hire a designated person for that role. However, we advise that you fully investigate the pricing of both options before making a decision.

What are the cons?

When you hire someone outside of your organization, you allow someone else access to financial and confidential information associated with your business. As a result, information can potentially be difficult to access since the data will not readily available through your technology systems. Additionally, cybersecurity is always a concern, especially when you are not in control of the data.

Overall, the decision you make needs to reflect what is best for your business. Consider all the options and do your research. And always assure that what is ultimately decided fits your budget and your business plan.