Outsourcing vs In-House Payroll — What Is The Best

Jenny Abraham
5 min readMar 5, 2024

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For any business, the long-standing debate that comes up when payroll is considered is — whether to choose an in-house payroll team or hire a payroll outsourcing company. The questions don’t stop here. There are a series of challenges that a business owner faces. Here are a few solutions to deal with these challenges:

Dealing with the In-house team:

-Number of people to hire for an in-house team

-Need for an experienced and qualified person in the team

-Training cost of the in-house payroll team

-Payroll Software cost, software upgradation cost

-Is the software installation necessary

-For the more qualified person you need to pay him more

Dealing with the payroll outsourcing company:

-Which company to consider as your outsourcing partner

-What is the payroll outsourcing cost

-What will be included in the outsourcing package

-Data will be compromised or not(Data security)

-If the wrong company is selected what will happen next

-Goodwill of the outsourced payroll provider

While addressing these questions, there are chances that in-house payrolling may best fit in certain circumstances and may not in some. Let us dive into the advantages and disadvantages of each.

Advantages Of In-House Payroll Team

Payroll is processed punctually, and an investment yielding returns

Full transparency and complete hold over the payroll data and process

Allows you last-minute changes

Able to analyse compensation and plan future growth

Accuracy in data integration with in-house teams for attendance, accounts etc.

Ability to deliver electronic payslips and other documentation via in-house software

Disadvantages Of In-House Payroll Team

Most time-consuming tasks

Payroll calculation is an Error-prone subject if the employee is inexperienced

Expensive if the employee is a specialist

HMRC Compliance challenges are more in case of mistakes

Getting integration challenges, if willing to configure multiple systems

Still, if you are managing the in-house process, without a specialist, it will increase your chances of error — besides adding workload for the employee who has been assigned the responsibility.

Exploring The Easy Option — Payroll Outsourcing

When a company hires the services of 3rd party service providers to perform payroll tasks for payroll processing, it is called payroll outsourcing. Every outsourcing company processes differently. You need to figure out which process best fits your business. Let’s discuss the benefits and limitations of payroll outsourcing.

Benefits Of Outsourced Payroll Provider

Minimal investment required

No staffing overheads

Provides flexibility at peak time

No requirement for leave records as you pay on an hourly basis

Training costs and being aware of the changing legislation are not required

If any inaccuracy occurs, you get a clear reimbursement

In case of dissatisfaction, you can change the service provider

The risk of fraud is almost negligible.

Limitations Of Outsourced Payroll Provider

If your company expands, the cost of outsourcing also expands

Hiring a consultant can be even more expensive

Risk of selecting the wrong service provider

Control over accessing important data individually may be lost. Need to provide access to important data.

A fully aware and well-researched business owner can facilitate eliminating such limitations– the qualifications of the employees of outsourcing payroll service providers, the time taken to complete the job, the testimonials of the company, and watching the reviews and ratings of the company on Google.

Besides these, some aspects cannot remain untouched while you are looking for a genuine outsourcing company. Here are the top 4 considerations for choosing in-house payroll vs outsourced payroll:

  1. Company size– The larger the size of the company, the bigger the risk of relying on a single in-house employee to hold the reigns of payroll, relying on a single in-house employee can be dangerous. A single mistake may increase the risk factors as well as the possibility of penalties.
  2. Costing– Spending less by having an in-house team and incurring penalties will get you to the same spot after hiring an expert outsourcing team without incurring penalties. The goodwill of your business is protected.
  3. Compliance and data security — If an employee breaches the data security, you can only fire the employee. The loss incurred, and the goodwill damaged will not be settled. So, to settle the scores, it is a wise decision to have an outsourcing partner on your side. They are trained to handle compliances to the best ability. Managing payroll compliances for firms of varying volumes and diverse requirements makes them highly skilled at their job and more concerned for accuracy to protect their goodwill.
  4. Expensive software fees– Software is very tricky as it is updated every year. If you are new to the software, it will be hard for your in-house team to cope with the updates, whereas the outsourcing providers have a team of trainers to train their employees well in advance, to avoid any possible errors.
  5. Saves Time — As we all know “Time is Money”, it will be a wise decision to free up the time of the in-house team allowing them to pay full attention to other key responsibilities of the business. The more productive work to focus on in any business are growth, sales and investment. Utilizing the time in the best way is what a businessman is required to do. Outsourcing your payroll to an outsourcing company puts the workload into somebody else’s diary, managing up a little more space in your place.
  6. Provides Expertise — Payroll is a complex and time-consuming part with a variety of regulations and legislation to adhere to. The in-house team will have to research at regular intervals to know all about the regulation and to stay updated on the market trends. An outsourcing team gives you the confidence that the payroll is processed by a professional accountant who knows all the requirements of the client’s work while processing.

Ways ahead:

Having comprehensively explored all the pros and cons of both approaches, if you are looking to engage with service providers for payroll outsourcing, we encourage you to check out the outsourced payroll services page on our website. Check out our outsource payroll services page on our website. It will aid you in deciding with clarity and taking a confident step ahead towards the benefit of your business!

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Jenny Abraham
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I am a professional marketer who is focused on the growth of the company.