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4 Reasons to Outsource Payroll

By aspenadminMarch 3, 2023May 25, 2023PEO Industry, Thought Leadership
Outsource Payroll
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Home » PEO Industry » 4 Reasons to Outsource Payroll

Now that employees form the backbone of your company, the payroll management strategy that you implement will ultimately have a direct impact on the company’s well-being and success.

The traditional approach entails handling everything in-house. But, it has its weaknesses – most of which progressive organizations have managed to avoid by settling for outsourced payroll services instead. They are increasingly hiring external firms to take over all their payroll functions, and the results have so far been overwhelmingly positive. 

Below is a breakdown of some of the major benefits that such companies continue to realize from this strategy. You can think of them as the top reasons to outsource payroll…

Why outsource payroll: Benefits of Outsourced Payroll

Payroll expertise and resources at a fraction of the cost

Payroll management is a complex process involving intricacies that can only be handled by specialized personnel. You’ll need a multi-faceted team that has expertise in finance, accounting, human resource, taxes, labor laws, etc. 

The hiring process alone will cost you, on average, about $4,000 per employee. And when they get onboard, you’ll still incur additional costs in training, equipping, and compensating that payroll department. 

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The bulk of all these expenses can be written off by outsourcing payroll. For a reduced fixed rate, you get to leverage an all-around team of payroll experts – who’ll collaborate using their resources to manage every aspect of your payroll. 

In the end, the outsourced payroll could potentially cut your company’s labor costs by up to 70%. 

Saves time

Most companies have multiple employees on their payroll. And to pay them accordingly, you have to work out their dues separately while factoring in the following:

  • Work hours.
  • Hourly rates.
  • Taxes due.
  • Payment benefits. 
  • Commissions.
  • Pension plan contributions.
  • Penalties incurred. 

To make matters worse, all that computation ought to be repeated on every payment cycle. Plus, there’s the burden of checking for accuracy, filing all the taxes, generating paychecks, and documenting the payments made. These tasks combined can add up to weeks of strenuous work every month. 

Now, that’s valuable time that you could save by outsourcing payroll. An external firm would take care of everything, leaving you to focus all your efforts on managing the company’s businesses. 

Ensures legal compliance

A simple blunder, miscalculation, or omission in your payroll could invite legal trouble, which might eventually lead to huge repercussions for the company and its executives. The process is that sensitive because its attributes fall within the jurisdiction of multiple federal and state laws, all of which you’re expected to comply with. 

You have to observe not just tax laws, but also the regulations on social security, employee wages, insurance programs, parental leave, and so forth. That can be a challenge –  unless, of course, you’ve outsourced payroll to a firm that stays up-to-date with all the legal requirements. 

Streamlines payroll management

Another important reason to outsource payroll is orderliness. If you’ve tried the traditional in-house strategy, then you understand just how challenging it can be to coordinate all payroll operations, data, regulations, and calculations. 

So complex is the whole thing that even small businesses struggle to organize basic payroll data. Their systems are often fragmented – with records distributed between excel sheets, accounting software, bank statements, hardcopy printouts, etc.

When you outsource payroll, however, all these bits and pieces are integrated to form a well-streamlined system. Everything is set to follow a structured procedure – from employee tracking and wage processing to paycheck handling and tax filing. 

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The data itself is stored securely on cloud servers, from where it’s updated in real time. That means you should be able to conveniently retrieve past records, as well as track your company’s payroll status while the operations are underway. 

FAQs on the Reasons to Outsource Payroll

To provide more clarity on why and how to outsource payroll, here are answers to some of the most commonly asked questions. 

Is outsourcing payroll cost-effective?

Outsourcing payroll has proven to be cost-effective – as it helps companies cut expenses that would otherwise have been spent on hiring, equipping, training, and facilitating in-house teams. 

Check out this case example of a company whose outsourced payroll saved it over $370k annually. 

What percentage of companies outsource payroll?

About 12% of organizations have fully outsourced payroll functions, while 26% rely on co-outsourced strategies. All in all, a whopping 73% of companies have outsourced some aspect of payroll. 

When should you outsource payroll?

The best time to outsource payroll is after your first hire. By forming early partnerships with payroll firms, you get to lay the groundwork that’ll sustain the company as it grows over the long haul. 

Otherwise, for a more detailed walk-through of how to outsource payroll, and the subsequent benefits that you’ll be seeing in your company, get in touch with our Aspen HR team today. They’re specialists in implementing, managing, and scaling custom payroll strategies. Plus, they’ll introduce you to our robust web-based HR and payroll platform.


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