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Pros and Cons of Outsourcing Payroll For Your Business in 2020

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Time and money are the two crucial factors for every business to sink or swim in the market. For them to grow and focus on the core aspect of the business, outsourcing payroll management plays a major role in tethering the corporations from the responsibility of going through intricate tax laws, printing pay stubs, remitting taxes that save your business’ time and minimize hassle. However, the ball is not always in your court and outsourcing can also lead to losses when certain measures are not taken properly. Here are a few pros and cons of payroll outsourcing services which you can weigh against each other to take an optimal decision.

Pros of outsourcing payroll

1. Saves time

Managing payroll of your business in this time and era requires resources and workforce on the same scale as that of managing your actual business. Sagacious knowledge of tax laws, filing tax returns, printing pay stubs, salary determination, consolidation of data regarding the pay of different employees are all handled by these payroll management services which save a great deal of time and the time freed up can be used to develop other areas of your business. According to a survey conducted in 2013, small-business owners ranked payroll taxes second out of the twelve categories for administrative freight. This is minimized by outsourcing. 

2. Saves Money

Outsourcing can also help in cost savings as the amount of money spent on making financial reports, pay stubs, upgrading payroll software, printing and filing of wages can be huge. Payroll services do these tasks at a volume discount and the cost of hiring them is affordable. The money that is consumed by these tasks can be spent on other profit-generating activities of your business. 

3. Taxes are easier to file

Payroll outsourced have rich knowledge about the current tax laws and regulations which is why they are well equipped to file taxes, create financial reports. They are your safety net in the event of an audit and protect you from unwanted tax evasion. It is also very difficult for you to keep up with payroll tax laws along with penalties and fines imposed by the IRS due to errors. These services help you to stay statutory compliant.

4. Security 

Data consolidation of all the employees and the status of the pay they need to receive, taxes to be remitted and other significant information is securely organized by a payroll outsourcer by the usage of redundant backup systems, multiple server locations, and other areas cybersecurity which can help protect employee data. 

Cons of outsourcing payroll

1. Losing Authority

Since the payroll outsourcers cannot be micromanaged, they have the liberty to manage your payroll under their terms on how they would exploit and use your data. This can lead to internal conflicts, fear of leakage of sensitive information, misalignment of their work process with yours which may negatively impact your business.

2. Instability of the outsourcing firm

Payroll outsourcing is a dynamic and tricky task that can often lead to shutting down of business due to loss of clients, incompetence of the payroll firms, inability to keep up with the complicated regulations. You are at risk of losing a lot of money and also access to employee data. This can be remedied by having a long term contract with your payroll outsourcer.

3. Difficulty obtaining information

Since the information lies with a different vendor, access to it can be difficult, especially when your outsourcer is based in a location far from yours, meeting with local executives from the firm can be difficult and friction arises when the feeling of being an outcast is projected either by the firm or by the outsourcer. The availability of cloud connection does not always ensure easier access to data due to factors at hand like minimization of collected data due to memory restrictions, power usage and cost. 

4. Cost savings are not always ensured

Many of the payroll firms, for their profits, introduce services or zero tailored services which are sometimes not needed for your business which can lead to you spending more amount of money than required and can experience losses. A business owner must research all the payroll outsourcers available to find the best fit for their needs and requirements since not all vendors provide services that fit your company’s size.

5. Mistakes are inevitable and have dire consequences

Correction of mistakes takes a longer time to process which is a liability to the company’s credibility in the market. If an employee gets paid late or misinformation in providing the amount paid is observed, the company can fall into legal issues and face huge compensation losses and to salvage the losses, a third party must be involved. Several payroll outsourcers handle numerous clients with a hefty amount of administration work which periodically falls under the trap of disorder in organizing information and your business gets caught in the crosshairs.

These are a few pros and cons of outsourcing the payroll of your business. Networking with various business owners can help you in finding the right payroll outsourcer as well as judging the competency of the service by parameters like years in business, work strategy, flexibility in negotiations, licensing, etc. It is always in your best interest to communicate with the payroll outsourcing firm about the type of services and assistance they offer, the fee they charge and the methods employed in ensuring data security, data consolidation.

About the author


Chanchal Soni

Chanchal Soni is a Growth Hacker and CRO Specialist at Appitsimple . She has experience in mobile app development, digital marketing, social media, content strategy and marketing communications. Lover of huskies, the ocean & boston sports.