As a small business owner, one of your many responsibilities is caring for your internal team – after all, they are the people who keep your business in motion. Ensuring that your team is paid correctly and on time is one of your top priorities as a manager.
In this post, we’ll take a look at the differences between in-house payroll and outsourced payroll processing, as well as the benefits and drawbacks of each.
Use the link below to go to the section that best covers your query, or read to the end for an in-depth overview of the topic.
Difference between in-house versus outsourced payroll
Depending on the salary structure of your organization, you can distribute a paycheck or direct deposit to your employees on a weekly or every two weeks basis. In-house payroll processing is taken care of by an internal HR or financial person but, you need to hire a third person to manage your payroll.
According to a Deloitte survey on payroll operations in North America, 32% of businesses use in-house payroll, and 24% completely outsource their payroll processing. Additionally, 43% of North American businesses use a third-party server to host payroll but complete the process internally.
The main difference between in-house and outsourced payroll processing is that an in-house team is on staff and on payroll – while an outsourced provider is hired externally. In the sections below, we define in-house and outsourced payroll processing, as well as look closely at their respective benefits and drawbacks.
Take a quick look at some important factors that can help you decide which one you should like.
Control overpay process
In-house payroll would be more suitable for you if you want to control time and have the freedom to make changes easily. Making changes with in-house payroll software is much cheaper and easier. If you have collective bargaining agreements or other rules that are subject to frequent changes, then stay indoors without a doubt.
If we talk about outsourced payroll, you will need to double-check the information even after relinquishing control over the process. Also, it will be difficult to make last-minute changes.
Frequency of Payments to Employees
If you have different groups of employees who are paid at different time intervals, then in-house payroll will be convenient for you. However, when a payment cycle is to be given, you can opt for outsourced payroll.
With the in-house payroll facility, you will have to pay a license fee based on the number of employees and therefore you can easily process last-minute as well as off-cycle payments.
Having a complex payroll in the organization makes the processing of data more difficult. Many companies have to do most of the calculations on their own before depositing the final amount to the bureau. In-house payroll must be chosen if you have to handle most of the calculations before handing them over to third parties. Another advantage is that when you have complete control over payroll data, you can create new reports without having to pay an additional amount to access your own transaction history.
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Good understanding of payroll
It is very important to have someone on the team who has a clear understanding of payroll so that potential errors can be unveiled. This requires certain skills such as tracking legislative updates, preventing interpretation of agreements, and monitoring compliance. When you don’t have anyone with these skills, it makes sense to outsource payroll rather than choosing an in-house arrangement.
Number of accounts on General Ledger
In-house payroll that carries a complete financial system, transactions can be posted directly to ledger accounts and accounts payable within minutes. So if the amount of ledger is high or the cost of the employee’s salary needs to be split between the two projects, then an in-house payroll would be more appropriate for the company.
Payroll transaction records
Auditing changes in payroll information is a high priority for some companies. With an in-house solution, you will have access to all the changes being made with the details of the person who made those changes.