6 Signs You May Need Payroll Outsourcing Services

As a business owner, you can easily be overwhelmed by payroll responsibilities that detract you from running your company. That’s why 38% of companies choose to outsource. But is this the best approach for you? We’ll reveal the top 6 signs you may need payroll outsourcing services to help you decide.

Download our free Complete Guide to Payroll Solutions and determine if outsourcing is right for you.

What is outsourcing payroll services?

First things first: What does “outsourcing” even entail? While many companies choose to run payroll on their own using either manual, paper-based methods or software, there are a lot of steps involved in getting payroll right. To reduce this burden, payroll outsourcing services are offered by a third-party provider who will handle as much or as little of the administrative and compliance tasks associated with payroll as you’d like. For example, you may just want a vendor to process payroll and take care of your quarterly tax filings. Or you may want to offload more responsibility and outsource other functions as well.

For more guidance about understanding the scope of payroll services—and how they align with your organization’s needs, consider downloading our complete guide to payroll solutions.

Top 6 Signs You May Need Payroll Outsourcing Services

How can you determine if your payroll workflows are in need of external assistance? Here are the top signs you may be ready to outsource.

1. Your payroll responsibilities detract from growing your business. 

At many employers, the individual responsible for running payroll spends a lot of time on the process, which can be a problem when it takes focus away from revenue-producing activities. In fact, business owners spend four hours and 52 minutes calculating, filing, and paying payroll taxes each pay period. One of the advantages of outsourcing payroll services is that the provider will take care of all the daily, weekly, and monthly tasks involved with paying your employees and keeping up with taxes, freeing up you and your team to focus on core business activities instead. With Complete Payroll Solutions, for example, a small company will spend less than 15 minutes each pay period on payroll.

2. You’ve found manual, paper-based processes to be error-prone. 

When it comes to running payroll in house, there are numerous calculations that need to be performed properly, from wages and deductions to taxes. And they’re not always straightforward. For example, while Social Security and Medicare taxes are fixed percentages for employees, income taxes depend on the amount an employee earns as well as the information supplied when the employee filled out their Form W-4. With so many steps involved, it’s understandable that companies who do payroll themselves often make mistakes. In fact, the IRS and SCORE report that about 33% of employers make payroll errors. A key benefit of outsourcing to a payroll provider is that they’ll use online software that automates tax calculations, withholdings, and filings for greater accuracy. And they’ll be responsible for any penalties your company might incur because of their mistakes.

3. You lack the resources to maintain your payroll software. 

If you’re using software to run your payroll, you’ll have to ensure that you keep it updated so that you’re using the latest tax tables each year. For example, the Social Security wage base limit changed to $147,000 for 2022. In addition, your program may offer new versions with features, fixes, and other improvements that you’ll want to download. But staying on top of all the software upgrades can be time consuming and may also require expenditures. When you use payroll outsourcing services, the vendor will automatically update its software seamlessly, with no action required on your end. This means you can be confident that you’re benefiting from the latest advancements for enhanced efficiency and accuracy.

4. You don’t have the expertise in house to meet compliance requirements. 

When you run payroll yourself, ensuring compliance with various federal and state wage and hour laws can be challenging. For example, when you manage payroll, you need to follow requirements regarding pay frequency, minimum wage and overtime, methods of pay, payroll taxes, paystubs, and recordkeeping. Each of these aspects of payroll carries the risk of penalties for non-compliance. And if your company is like many others, you likely don’t have the expertise in house to stay on top of all the rules. If you utilize payroll outsourcing services, however, the provider will guide you on legal requirements and ensure you get payroll right. In addition, since they’re experts in compliance matters, you won’t have to spend the time and effort to stay on top of all the regulations yourself.

5. You worry a negative payroll experience will impact employee satisfaction. 

Although one of the advantages of in-house payroll processing is having more control over your payroll data, you risk getting payroll wrong because of common problems we mentioned like incorrect calculations. And payroll mistakes can negatively impact morale and retention. In fact, just two payroll errors can cause 49% of employees to start job hunting. With outsourced payroll services, automated processes mean you’ll consistently pay employees accurately and on time. In addition, many payroll vendors provide your team anytime access to a self-service portal where they can look up pay data, download their paystubs and W-2s, and change their personal information – actions that can empower and engage them and increase loyalty.

6. Your company needs assistance with other HR functions. 

You may have just a few employees now and seemingly pretty basic payroll needs. But if you’re starting to grow, your HR needs can, too. For example, you may need help with hiring and onboarding or offering health insurance or a retirement plan. When you choose to outsource, you’ll find that payroll vendors typically offer as much or as little support as you need in all areas of workforce management. That means you can choose to get comprehensive and integrated payroll, HR, benefits, and compliance support all in one place, with bundled pricing for even greater value; this is one of several advantages of outsourcing payroll services. To make sure the provider you select can handle the complexities of future expansion, ask about their other offerings and how they will scale with you to meet your objectives as your business evolves.  

How to Choose the Best Time to Use Payroll Outsourcing Services

While there are some advantages of in-house payroll processing like maintaining control, having more flexibility for paying cash wages, and avoiding vendor expenses, outsourcing can be a good option for companies that want to avoid the complexities of doing payroll themselves and ensure accuracy each time. Ready to outsource? Find out the factors to consider when selecting a provider.