Outsourcing payroll services: From A to Z

July 8, 2022
6:00 pm
BPO Insights
Finance and Accounting Services, Payroll Services

Outsourcing Payroll Services can be a great solution for small businesses that want to focus on their core operations and leave the complex task of payroll management to experts. But what should you look for when choosing a payroll outsourcing provider?

This comprehensive guide will walk you through the basics of outsourcing your company’s payroll, from deciding if it’s the right move for you to finding the best service for your needs. Read on to learn everything you need to know about outsourcing payroll services.

What is Outsourcing Payroll Services?

Outsourcing payroll services can be effective for any business, big or small. Outsourcing Payroll Services mean engaging another company that will handle all your financial tasks related to paying employees.

At the same time, you focus on running the day-to-day operations of your business. Hiring out these responsibilities makes it possible to reduce costs and save time by having someone else do something so complex.

Outsourcing Payroll Services is a great way for companies with limited resources to provide their employee’s payroll services still. The process includes all activities related to paying staff, from maintaining employee records and computing wages through the distribution of paychecks or bonuses and taxation compliance requirements imposed by government entities where they operate in certain countries around the world today.

Payroll Services can be a part of the Finance and Accounting Services Outsourcing, HR Services Outsourcing or Administrative Services Outsourcing of a business.

What Can Payroll Functions Be Outsourced?

Setting up an employee payroll account. Collecting all necessary personal information for processing the individual’s payroll
Setting up payment methods. Establishing the desired payment method for the company, involving automatic payments/direct deposits, or paychecks.
Withholding of all applicable income and payroll taxes.
Remitting payroll taxes to the tax department.
Managing any applicable employee deductions, such as health insurance and workers’ compensation and recording these in the employee’s pay stub
Managing any end-of year tax forms and declarations.
Tracking time worked
Calculating wages owed
Delivering pay
Instituting security measures for safeguarding company and employee information
Ensuring compliance with government regulations
Remitting payroll taxes

How Do Outsourcing Payroll Services Work?

The general process for Outsourcing Payroll Services is as follows:

Agree on terms of engagement: The business has confirmed and submitted a detailed list of what is expected from both parties and how much it will cost for each party to confirm their agreement through signing documents spelling out all details, including prices upfront, so there can be no misunderstandings later down the line.
Ensure all essential registrations are in place: The payroll outsourcing provider will ensure that your business fully complies with all necessary registrations and licenses.
Acquire necessary employment and business information: The payroll outsourcing provider will require access to all employee information necessary to manage employee payroll.
Process payroll at regular intervals: Payroll processing should be done at regular intervals. The frequency will depend on what’s allowed by law. Still, many companies choose biweekly because it ensures tax withholding is completed each pay period correctly.
Report to the client as agreed: Reports should be made regularly from payroll outsourcing providers so they can keep an eye on business performance.
Remit taxes and contributions on a regular basis: The payroll outsourcing provider will submit payments and any necessary documentation to the tax authorities, ensuring that your company complies with all local regulations.

What are the Advantages and Disadvantages of Outsourcing Payroll Services?

When considering Outsourcing Payroll Services, weighing the pros and cons is essential. We’ve come up with a list of potential benefits and drawbacks for your perusal.

Time

Pro: Time Saving

The payroll process is tedious and takes up daily hours for small businesses. However, companies spending 3-5 manual, laborious minutes per month processing it manually – an automated workflow could save them time and hassle.

Outsourcing Payroll Services give you valuable time in your workday and a more strategic perspective for the organization. You’ll feel less stressed about that massive to-do list since someone else will take care of it.

Con: Time to implement

Implementation of a new system can be difficult and time-consuming, so it’s essential to determine how much you need in advance. The more work that needs to be done, the longer this process will take, and other factors are usually involved, like departmental collaboration or meetings with leadership.

Cost

Pro: Cost savings

Outsourcing Payroll Services often save companies money when they can process it themselves instead of investing in the necessary equipment and software for processing.

By outsourcing, your business will never have an under or overpaying incident because you can monitor everything that goes into their payslips more precisely than if someone was doing this task personally. Plus, there’s no need to spend time teaching new employees how to do things properly.

Con: Cost of solution

The cost of Outsourcing Payroll Services can be anywhere between $10 and 85 per month, depending on your needs. A few integrations may also incur an additional charge for their functionality – this would depend entirely upon what type you choose to use. Consider outsourcing if you’re looking for a cost-effective way to handle your payroll.

See more» How much Payroll Services Cost

Compliance

Pro: Guaranteed Compliance

HR and payroll departments spend full-time on compliance-related activities, from tracking regulatory proposals to creating new policies. This is not surprising considering that these workers need to know ever-changing rules to run an organization successfully.

The best way is by Outsourcing Payroll Services and HR services so they can handle compliance for your company with ease-saving time spent on paperwork or worrying about fines from neglecting obligations such as paying employees correctly each month.

Con: Your Organization is Ultimately Accountable

Failing to pay taxes can have serious consequences for your company, including fines and penalties. If you need reliable Outsourcing Payroll Services with tax compliance, many providers offer it. The provider will calculate and file your taxes for you to keep things simple on the reporting end so that no time goes wasted in waiting around or wondering if they were done correctly.

Security

Pro: Professionals Do the Work

By entrusting the complex payroll functions to a provider experienced in expert management, businesses can devote more of their resources and attention to what they know best. Specialized providers like Payroll Service Bureaus are invaluable – not only relieving companies from performing a critical but unrelated housekeeping task but also providing handpicked expertise.

A third-party payroll provider should demonstrate proficiency in all aspects of the job and possess an intelligent management system to ensure optimal results. Their staff must be highly trained professionals with access to best-in-class software programs for maximum efficiency.

Con: Decreased Data Security

The risk of malicious activity is an ever-present concern when Outsourcing Payroll data management. Although cloud-based programs use sophisticated encryption and firewalls, they are attractive targets for cybercriminals seeking sensitive information.

Data security is an ever-present threat, but risk levels skyrocket when sensitive information like Social Security numbers and bank account details are transferred outside the company boundaries. For this reason, it’s wise to keep such data protected within a business’ walls whenever possible to mitigate any potential security vulnerabilities.

Management

Pro: Increased Focus on Core Functions

Core business operations are essential for companies to maximize revenue and grow their organization, but payroll requires additional resources that can distract staff from those goals. In-house teams may handle the job adequately under normal conditions, but when complications arise, relying on internal expertise could impede efficiency in the long run.

Outsourcing Payroll is an efficient and cost-effective way to streamline business operations while allowing companies to save time by eliminating a significant source of administrative burden. Businesses can channel more energy into tasks supporting growth and progress by cutting the’ fat’ from their employee rosters.

Cons: Less Oversight

By Outsourcing Payroll, companies give up their direct control over specific processes. While clients remain accountable for setting expectations and closely monitoring the provider’s performance, there is no substitute for complete internal oversight when managing crucial payroll functions.

As companies look to third-party providers for payroll solutions, it’s important to remember that final responsibility rests with the company itself. Payment mistakes cannot be passed off on their provider; the ultimate cost – in time and money spent rectifying errors– remains theirs until appropriately addressed. Furthermore, tax remittance is not impacted by outsourcing this function: liability falls squarely upon the client regardless of any missteps made by its provider.

What’s the Difference Between In-House Payroll Vs. Outsourcing Payroll Services?

In-house Payroll Processing is when a business internally handles all matters associated with employee pay. These tasks include:

Calculating timesheets and wages
Ensuring the correct amount of payroll taxes are deducted from each paycheck
Applying any deductions for items like retirement contributions and health benefits
Printing checks and initiating direct deposits
Calculating deductions and payroll taxes

The advantages of in-house Payroll Processing include controlling sensitive company data and when paychecks are issued. The risks associated with this type of system involve errors and deductions not being completed correctly or at all (including noncompliance).

Outsourcing Payroll Services is a great way to free up time and resources for other vital tasks. You can outsource payroll processing, including filing taxes and making payments on your employees’ behalf, without taking care of those responsibilities yourself.

With the growing complexity of modern business, many companies are turning to Outsourcing Payroll Services. These tasks used to be handled by human beings. Still, with this automation, it’s now possible for CEOs or high-level executives in charge of primary operations within organizations to focus on more strategic matters.

What is Payroll Processing? 7 steps to process payroll

Payroll Processing is the process of managing employee payments, including inputting them into payroll software and giving out their paychecks.

Payroll is a time-consuming task for small business owners. When your team grows and makes payroll more complicated, you might hire an accountant or HR manager to take care of it instead.

Payroll software is an excellent way for small business owners to organize their work and ensure payroll compliance. Many taxes need attention when processing paychecks, which can get complicated quickly without professional assistance.

If you’re wondering how processing employee payroll works, there are 7 basic steps from start to finish.

Step 1: Collect employee tax information such as geographical location, social status, and family circumstances, etc.
Step 2: Create a record management process
Step 3: Determine pay schedule. Depending on the situation, consider weekly, biweekly, or semimonthly options.
Step 4: Track time and attendance. Track any Paid Time Off (PTO) and overtime hours your employees work – record employee work times on a spreadsheet.
Step 5: Calculate deductions. A deduction plan reduces gross pay to account for items such as Social Security taxes, Medicare, and Federal unemployment tax.
Step 6: Pay employees
Step 7: Submit payroll tax payments and filings

See more» Payroll Processing Guide for 2023: All you need to know

What is Payroll Software?

Payroll software is a system used by businesses to automate the process of payroll. Companies use Payroll software to calculate employee wages, withhold taxes, and generate payroll reports. It can also be used to direct deposit employee paychecks and make payroll tax payments.

Many payroll software systems are available, and the features offered by each system vary. Some payroll software systems are designed for small businesses, while others are designed for larger enterprises. When selecting payroll software for a business, it is vital to consider the business’s needs and the features offered by each payroll software system.

Payroll Software Features

Payroll services offer a variety of features and tools that streamline payroll processing for small businesses. Here are some of the most valuable attributes:

Unlimited payroll processing. Some payroll services allow you to run the same payroll each month, giving employers more control over when their employees get paid. This flexibility also lets them pay independent contractors whenever they complete a project without having an additional fee for repeated processing runs.
Payment options. Payroll services allow you to pay employees by direct deposit, paper checks, and prepaid debit cards.
Payroll tax. It is a complicated matter, and it’s vital to have an online tool like payroll services to determine how much your business owes in federal, state, and local taxes.
Year-end tax forms. They are a necessary part of running your business. Payroll services will prepare all the appropriate paperwork for you.
On-demand pay. Some payroll providers offer this service, allowing employees to choose when they want their next paycheck and still follow a regular schedule (such as biweekly).
Paid Time Off (PTO) management. It is an essential aspect of being an employer. Some payroll services handle all or some elements on your behalf, including tracking how much paid time off employees earn and use and allowing them to request days off from work, which managers then approve/deny according to company policy objectives.
Employee self-service. The software has an online portal that employees can access to view their pay stubs and year-end tax forms.
New-hire reporting. The process of hiring new employees can be difficult and time-consuming. Many payroll services offer this paperwork for you. Still, filing the correct forms with state agencies is essential to maintain compliance across state lines and avoid possible fines or other adverse outcomes if something goes wrong.
Mobile access. Payroll services are now available for mobile users. This means you can access your payroll information on any device, whether an iPhone or Android smartphone.
HR services. They are often an overlooked but essential part of your business. Some payroll providers offer onboarding tools, employee benefits management, and HR compliance to help you navigate the ever-changing human resources management world; others give dedicated professionals access to this job.

Pros and Cons of Payroll Software

Pros:

Make changes easily. Managers and leadership teams at your business can easily change payroll operations through a secure platform. If anything needs tweaking, authorized users can open up their software package without boundaries preventing them from accessing this information immediately.
Control internally. The integrity of company data is protected with in-house payroll systems. This way, businesses can be sure that only the appropriate employees can access and view information stored on these platforms without worrying about third parties poking around their finances.
Access easily. Internal employees who need access to payroll data can get it from wherever they happen to be if their company uses software like this. As mentioned, the mobile-first design ensures that all your employees have a seamless experience accessing information in real-time, saving you time and money.
Maintain vendor relationships. The software vendor can help with automatic updates or provide other types of services, such as adding different kinds of service modules.

Cons:

Spend much time to learn. It is one of the most important aspects when implementing payroll software. When it comes down to how quickly employees learn and become efficient at tasks, a human resources department may take longer than an outside service provider.
Be responsible for mistakes. Human error is a big downside for payroll software use instead of hiring an outside contractor. Internal people can end up missing forms or getting numbers wrong, and it’s the responsibility of your business (and them) to fix these mistakes – which could be time intensive.
Fee. When companies look at the fees attached to payroll software products, they need to ensure that these are not excessive in terms of what value they will give back.

Top tips on finding a company to assist with Outsourcing Payroll Services

Company’s reputation: If you’re looking for a payroll provider that can meet all your needs, then it’s essential to work with an excellent company with solid customer service and high ratings in the business. In addition, make sure they offer services explicitly tailored towards companies like yours- this will ensure reliable weekly paychecks.

Additional HR services: When looking for a payroll provider, ensure they offer additional HR services. If your company processes international Payrolls and needs help with visa consulting or Professional Employer Organization (PEO), then be on the lookout! You’ll want to ensure that these types of offerings come to standard to meet and exceed employee expectations.

Information security: Payroll is typically processed electronically, meaning the necessary protections for employee data must be in place. Most countries have strict regulations on how employers may or cannot use this personal info. All businesses should do their due diligence when it comes time to protect themselves against potential compromises of confidential information.

Regulatory compliance capabilities: You want to ensure that your company follows the latest regulations and guidelines. Ask about their compliance capabilities to avoid any costly surprises down the road.

When interviewing potential providers, it is vital to have a list of questions prepared before meeting with them. A good payroll provider will not only spend time answering your queries but also explain the value they can bring to your business that is easy to understand and valuable for what type of organizational structure you operate.

Best Practices for Outsourcing Payroll

Focus on Provider Reputation and Experience

When considering Payroll Outsourcing, don’t be quick to make a decision—being thorough and attentive is essential. Perform due diligence on the provider’s reputation and experience to ensure you’re entrusting your business with an entity that can adequately manage staff payments without mistakes or data breaches. Ultimately, researching carefully upfront enables employers greater peace of mind when delegating this vital responsibility.

Remain Aware of Regulations and Tax Burdens

Staying informed on compliance regulations and taxes is essential for Payroll Outsourcing. Companies must carefully consider the employment laws of their provider’s country or risk facing negative consequences.

Double-checking that a third-party provider has accurately remitted all applicable tax payments should always be at the top of any organization’s list. Failure to do so might lead to costly penalties for which your company would bear full responsibility.

Take Your Time

Experienced companies know the value of their outsourcing contracts, but it’s essential to take a measured and thorough approach for those just starting to outsource services. Carefully researching potential providers before signing agreements is vital in safeguarding your business interests.

Finding a new payroll provider is more than just an administrative task – it’s the lifeblood of any business responsible for powering its greatest asset: people. With sensitive data at stake, this isn’t a decision to be taken lightly, especially when considering duties like manufacturing and customer service outsourcing.

Outsourcing payroll services can be a great decision for your business. It can help you save time and money while freeing resources to focus on other aspects of your company. However, a few things to remember when choosing a payroll service provider. Make sure to research different options and ask lots of questions so you can find the best provider for your unique needs.

Contact us if you have any questions about Outsourcing Payroll Services or would like assistance finding a provider that’s right for you. We’re happy to help.

See more»