Which Payroll is Best for Your Business? Outsource or In-house (Part 1)

Outsource or In-house Payroll

As a manager, ensuring that your team gets paid accurately and on time is one of your responsibilities. Consistent payroll inaccuracies and delays can spell disaster for your company, from tax non-compliance to high employee turnover and an increase in your overall HR costs.

Here at Snow, our job is to provide managers and company executives with intuitive, seamless, and easy-to-integrate payroll solutions. That’s why we have created this guide to give you an overview of:

  • In House payroll vs outsourcing,
  • The process of employee payroll outsourcing
  • the benefits of outsourcing the payroll function
  • what to consider when outsourcing payroll.

We also look at payroll outsourcing software, show you the features of a payroll outsourcing business plan and five reasons to outsource payroll.

What does running the payroll involve

At its core, executing a company payroll involves adding up hours worked and calculating employee pay. Depending on your company’s pay structure, you may issue pay-cheques or send out direct deposits to your employees weekly, fortnightly, or monthly.
For large companies, running the payroll often includes more tasks such as tax filing, generating records and pay stubs, holiday and sick leave management, and managing employee benefits and retirement plans.

In house payroll vs outsourcing vs payroll outsourcing software

In-house payroll processing is handled by your human resources or finance department while outsourcing is when you pay a third-party payroll provider to run the payroll function. A third option is using online payroll software to process your payroll internally.

According to a payroll operations survey run by Deloitte in North America, 32% of businesses run their payroll in-house, 24% entirely outsource their payroll processing, and 43% use third-party payroll software to complete the process internally.

How does In-house payroll processing work?

In in-house payroll processing, the accountant or team handling the payroll is part of the company staff and on its payroll. In house payroll processing employees can fall within the finance or the HR department.

Payroll processing clerks can use a custom company system or third-party payroll software. Different organisations have different procedures but they all involve six basic steps:

  • Setting up a payroll bank account.
  • Creating a time-tracking system for (hourly) employees.
  • Establishing a payroll schedule – the most common schedule being bimonthly (every two weeks)
  • Collecting timekeeping data for each employee to calculate gross pay
  • Subtracting retirement and healthcare contributions, taxes and any other deductions from each employee’s gross pay.
  • Sending out the net pay to each employee on a predetermined payday.

What are the benefits and drawbacks of in-house payroll processing?

Should I outsource payroll? If your company is thinking of shifting to outsourcing, it might be helpful to consider the advantages and disadvantages of processing your payroll in-house.

An internal payroll system gives you greater control over payroll processing, giving you the chance to customise the process to your preference. The drawback is that you will have to employ a full-time accounting expert, who may be too expensive for your company.

In addition, you will still have to oversee that everything runs smoothly, as company manager thus you have one more task to complete.

Finally, even though you will save costs when you choose to hire someone instead of outsourcing, you risk inaccuracies and being non-compliant with the latest tax laws.

What is payroll outsourcing?

Payroll outsourcing is hiring a third party to run your company’s payroll function. Your payroll provider can be an accountancy firm, a specialist payroll company. You can also hire an individual contractor or freelancer, especially when operating internationally.

Payroll outsourcing companies offer different services, and many companies offer tiered services to choose from. The basic plan offers:

  • Simple payroll processing
  • Time tracking
  • Tax compliance
  • Electronic payroll records and pay stubs

Before diving into the features of advanced payroll outsourcing plans, we give you a basic overview of how payroll outsourcing works.

How does payroll outsourcing work?

Most payroll outsourcing companies charge a flat rate every month or pay period. For a monthly fee, you will get to run your payroll as many times as you want within that period. If you’re charged every pay period, then you’ll pay a fee every time you run your payroll.

The cost of your plan will also depend on the number of employees. With most providers, you’ll pay a small fee for every employee on payroll at your company. You will also pay extra fees for additional features like tax filing.

Here are the six basic steps to expect when working with a payment outsourcing company for the first time. The provider will

  • Agree with your company on the terms of engagement and the costs
  • Ensure that your company acquires all licenses and registrations needed to manage a payroll
  • Set up employee payroll accounts. You will provide the necessary employee data for processing each employees payment e.g. bank accounts and Social Security details
  • Set up the payment method. You will provide the details of your company’s preferred payment method e.g. automatic payments/direct deposits, or paycheques.
  • Process the payroll at a regular schedule depending on your company’s preferences and employee laws
  • Withhold all applicable income and payroll taxes.
  • Provide reports so you can track the company’s performance
  • Remit payroll taxes to the tax department. As the employer, you still must remit your taxes.
  • Manage any employee deductions e.g. health insurance, retirement plans.
  • Manage end-of year forms

Features of an advanced payroll outsourcing business plan

A premium payroll processing plan will come with features such as :

  • A designated expert to handle your account
  • Compensation for tax penalties
  • Custom apps for employee self-service and time management
  • Backups (for a designated period e.g. 18 months, 24 months)
  • Scheduling and shift management software

Is outsourcing payroll a good idea? 5 reasons to outsource payroll

Should I outsource payroll? The benefits of outsourcing your payroll function include cost and time savings, access to experts, prioritising your core business, and enhanced compliance with tax laws. Here we give you five reasons to outsource payroll:

Easy setup

Payroll outsourcing is easy to set up because third-party payroll systems are already designed to follow a standardised payroll process. All you need to do is provide your company’s information, configure the process to your needs and step back.

Time-savings Outsourcing your payroll to experts will save your HR department the time and stress it takes to process weekly payrolls and create reports.

Avoid tax penalties

Payroll outsourcing companies typically standardise their processes to adhere as closely as possible to various compliance rules, including those outlined by the state, the government, and other governing agencies.

Also, providers must fulfil strict requirements which means that they will be more compliant than an in-house team. This will avoid tax compliance problems in the future.

Reliable Backups

Having backups of your payroll is critical, especially during company audits. In-house payroll processing creates a large log of data, which consumes valuable space in internal servers. When you outsource payroll, your company payroll reports are stored in a safe and secure place without consuming valuable internal server space.

Access to a support team

Payroll outsourcing companies often include access to a support team, and for premium plans, a designated expert to handle your account. Having an expert to provide speedy solutions is critical, especially in the case of tax non-compliance issues.

Payroll Outsourcing with Snow
When choosing a company to handle your payroll you need a partner you can trust with your data. Snow provides custom solutions for your payroll needs, with secure and standardised procedures to protect your company data from breaches. Reach out to us today!

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