In-House Payroll vs Outsourcing: How to Decide

in house payroll vs outsourcing

Home » Payroll Services » In-House Payroll vs Outsourcing: How to Decide

In-house payroll management can be a nuisance for any sized organization, and you’re not alone if it is difficult to allocate the responsibility of it. Is it a clerk, book keeper, or HR? Often times, the manager or owner of a small business does it by default, which is just as problematic.

The alternative to in-house payroll is to outsource the job to a payroll processing firm, which saves time and likely money despite its upfront costs. Consistent accuracy is more often achieved when hiring professionals who can focus on the details of compliance, data, and timeliness.

Ultimately, it comes down to a cost-benefit analysis which you can read about below.

What does in-house payroll mean?

In-house payroll not only involves the assignment of who does the job, but also identifying and fulfilling the components of this relentless task. These include but are not limited to:

-Collecting every employee’s tax information via a W-4

-Deciding on a payroll schedule

-Choosing a processor

-Paying taxes every payroll

-Filing quarterly and annual tax forms

-Reconciling errors in any of these

in house payroll vs outsourcing

On top of these regularly scheduled items, whoever runs payroll on your team must deal with any clerical errors or special requests from your employee. It turns into a full-time job extremely quickly, which may not be feasible for a small business budget.

In-House Payroll vs Outsourcing

Having gone over the duties of in-house payroll, let’s compare it to outsourcing it.

In-house payroll isn’t all bad; it allows for more data security and access, quick turnaround on errors, and can sometimes be cheaper if you have a real pro on your team. Past that though, it becomes clear that small businesses stand to benefit from outsourcing the payroll duties.

To being with, you don’t have to compile all the forms, software, and regulatory resources on your own if you outsource payroll. These are all built into the overhead of an outsourced processor, and it’s very likely their tools are better quality than the ones in your budget range.

On top of these industry-leading practices, you can also put an exact dollar cost on the service, which is a hassle to do internally. A payroll processor will also be expected to file all tax forms properly and on-time, which is a surprisingly common issue that leads to serious trouble if unnoticed. Peace of mind is one of those costs that is more easily quantified via outsourcing.

Why Do Companies Outsource Their Payroll?

In addition to balancing the construction of an in-house payroll process while managing risk, the biggest benefits of outsourcing payroll are simple: time and organization.

You likely didn’t start a business for the love of data entry and wage laws, and hiring for this task is not conducive to focusing on your products, brand, or culture. Despite the clear upside of a professional payroll service, it is estimated that only 61 percent of companies outsource their payroll.

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When you start to list the benefits of a payroll processor, it’s a light-bulb moment for anyone who has had to deal with managing their payroll internally.

A payroll processor will:

-Save time gathering data and inputting reports

-Calculate everything accurately.

-Print, sign, and distribute checks

-Remit taxes and returns on time

-Catch and mitigate payroll errors

-Have enhanced data security

-Be fully compliant with government laws

-Create diverse and useful reports

There are likely ten other high-impact time and cost-saving benefits to outsourcing payroll.

What’s Best for My Business?

Though a good case has been made for outsourcing payroll duties, there are reasons to keep it in-house. If you have a small number of employees with a very rigid pay format, it may not be worth paying for professional payroll services. That being said, if you are considering the pros and cons of this decision, you’ve likely outgrown a formatting that supports in-house being more efficient.

in house payroll vs outsourcing

We recommend doing both a quantitative and qualitative breakdown of your in-house payroll job if you’re still doing it there. There is a good chance that this exercise alone will cause you stress, which would lead us to believe that more companies should be outsourcing.


Business is best conducted when its resources are efficient and properly allocated. Outsourcing payroll helps free up time, saves money, and creates a more professional culture in a workplace. When you add in the stress of compliance and liability, it becomes heavily weighted towards going with an outsourced provider.

In the event that you are looking to outsource your small business payroll, it is still important to be selective about who the processor is. After all, this is the literal livelihood of your employees being handled, as well as very sensitive data about individuals and your organization.

Pay-Tech prides itself on working with small businesses to achieve stress-free payroll processing. The goal is to have a personalized experience that helps a small business focus on their expertise while streamlining difficult processes. If you are interested in hearing more about our services, please don’t hesitate to reach out- we’d love to help.

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