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Outsourcing Payroll Pros and Cons: Which Is the Right Choice for Me?

Written by Beth Hodge

July 11, 2019

Handling the payroll for a business is a complicated task. Do it yourself inclined business owners may choose to learn the ins and outs of payroll and handle it themselves, or make sure they have someone on their staff who understands it. While others would rather focus on what they know and let someone else handle their payroll for them. If you fall somewhere in between and are on the fence about whether payroll outsourcing or handling it in house is better for you, keep reading. In this post, we will help you weigh the outsourcing payroll pros and cons, so you can make an informed decision.

Benefits of keeping payroll in-house

  • Ability to resolve payroll mistakes faster and ensure employees receive accurate and timely payment.
  • Greater flexibility to react to last-minute changes.
  • Better control over your payroll process and the quality of service your employees receive.
  • On-demand access to your business’ payroll information and history.
  • Increased efficiency thanks to integration between payroll and your financial management software.
  • Ability to create whatever Payroll reports you need with no additional fees.
  • Increased privacy, only the individuals on your payroll staff can access your sensitive payroll information.
  • Improved cash flow control. When you handle payroll in-house, you have until payday to fund the payroll and then at least another three days before taxes and deductions come out of your bank account.


Now, let’s look at the flip side of this coin.

Benefits of payroll outsourcing

  • Lower staff cost. There’s no need to keep a payroll expert on staff, only a clerk to enter hours and report changes.
  • Fewer hours spent handling payroll tasks.
  • Freedom from Payroll reporting. There’s no need to worry about things like filing quarterly and annual reports and handling garnishments. Sometimes, a payroll outsourcing vendor will even handle 401(k) reporting and Affordable Care Act (ACA) reporting for you.
  • Compliance made easy. You don’t have to keep up with the ever-changing and intricate rules for payroll issues like sick pay, ACA, overtime or tips reporting.
  • No need to keep your accounting system’s payroll tax table up to date which can save you time and consulting fees.
    Increased security. When you keep the payroll in-house, there is a chance you’re more computer savvy employees could access their coworkers’ information. Outsourcing it removes this risk.
  • Employees can easily update their basic information on their own. Most payroll outsourcing services offer web portals where your staff can handle simple payroll requests like reprinting check stubs, changing their address or updating their tax status.

As you can see, there are a lot of factors to consider when deciding whether outsourcing payroll or keeping it in-house will be best for your business. But what it really comes down to, is how much effort are you willing to put into payroll? Is it something you have the resources to take on, or is your time, or that of your employees better spent in other areas?

Still not sure which payroll option is best for you?

There’s a third option to consider. A hybrid approach where you process your payroll in-house using your accounting or financial management system. And then use third-party software to handle other aspects of payroll management. This could include things like tax reporting, W-2 processing, emailing remittances, setting up an employee portal, ACA compliance and more. That way, you can make use of your existing tools, while still getting help with the more complex parts of payroll.

If you’re interested in this option, you can find more information on Greenshades, a popular payroll add-on for Microsoft Dynamics GP and Dynamics SL on this webpage.

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