Outsourced vs internal payroll: A battle of expense

Managing payroll is one of the most significant tasks all business must undertake, so it’s vital to get it right. There is a lot of debate around whether outsourcing your payroll or doing it internally is better and more cost effective. To make the best decision for your business, you need to have a good understanding of the advantages and disadvantages of each approach, ensuring you use the most effective method at the lowest expense.

As outsourced and internal payroll go head to head, in the end it may be in-house efficiency software that has the best of both worlds and provides the biggest benefits for users.

3 minutes

Posted 28/06/2016

In the red corner: Outsourced payroll

Outsourcing payroll to an external service is a popular choice for businesses that value the potential time-saving, accuracy and convenience they can experience. However, many businesses that do this could actually be paying more than they need to while receiving a service that may not be operating in a way that most benefits them.

David Payne, CEO of The Accounting Department, told Shortlist that some companies are paying a fee of up to 4 per cent of payroll transactions, despite the fact that 1 to 2 per cent is a more reasonable figure. This can add to a significant cost for businesses, particularly those with many employees or temps, and can still incur internal expenses to manage the outsourcing arrangements as well. Businesses will also have less control and a limited view of their information.

In addition, The Houston Chronicle says that there is still a chance of errors, for which the business itself will be held accountable, despite they fact that they did not process their own transactions.

In the blue corner: Internal payroll

Many business owners see managing payroll internally as a hassle. However, the use of software can actually provide the same efficiency benefits of outsourcing while also allowing companies to maintain greater governance over their data. It enables them to gain a fuller picture of their ongoing performance and profit margin. This is particularly the case for all-in-one software solutions, which provide a flow of data from the front to the back office, rather than fragmenting the information the way using many external services can.

In addition, using end-to-end solutions to conduct payroll transactions could also potentially be cheaper when comparing the cost of investing in software with ongoing transactional fees from other providers.

As a result, managing payroll as part of a wider recruitment software solution may be the best investment for many businesses, giving them convenience and cost-effectiveness while still maintaining the control.