GUIDE 2024

What is Payroll Outsourcing?

Payroll outsourcing is the act of delegating your business’s payroll operations to a third-party provider, an entity external to your organization. This practice helps businesses streamline their payroll process, ensuring employees get paid correctly and on time. Moreover, payroll outsourcing companies often provide additional services like tax filing and benefits administration, adding layers of convenience and professionalism to your company’s operations.

In essence, payroll outsourcing is about leveraging expertise and technology. When you hire a payroll outsourcing company, you’re essentially hiring a team of experts in payroll processing, tax regulations, and legal compliance, equipped with advanced systems that can handle payroll tasks more efficiently and accurately than most in-house teams.

However, it’s important to remember that outsourcing doesn’t mean relinquishing all control. Many providers offer platforms where you can access payroll data and run reports, maintaining a level of oversight and control while still enjoying the benefits of outsourcing.

How Payroll Outsourcing Works

Payroll outsourcing begins when a business enters an agreement with a third-party provider. The provider will then gather all necessary data about the business, its employees, and their respective pay scales, benefits, deductions, etc. They also need to understand the business’s pay schedule, whether it’s weekly, biweekly, or monthly.

After setup, the business will provide the outsourcing company with data for each pay period. This typically includes hours worked, any absences, new hires, terminations, or any other changes that could affect payroll. This data can usually be submitted online via the provider’s platform.

The payroll outsourcing company will then process this data, calculate net pay after deductions, and distribute payments to employees through direct deposit, check, or pay cards. They will also calculate, withhold, and pay payroll taxes on behalf of the business, and often provide end-of-year tax forms for employees.

One of the key aspects of how payroll outsourcing works is compliance. The provider ensures the business’s payroll practices adhere to federal, state, and local labor and tax laws. This often includes tracking changes in laws or rates and adjusting processes accordingly.

Moreover, the provider offers payroll reports to the business. These reports can provide valuable insights into labor costs, helping the business manage its finances better.

Why Do Businesses Hire Payroll Outsourcing Companies?

Businesses opt for payroll outsourcing for many reasons. Primarily, it saves them time and reduces the complexity of managing payroll in-house. Processing payroll requires a high level of accuracy and a deep understanding of tax laws and regulations, something a small to medium business might find challenging to manage.

Additionally, payroll outsourcing companies provide a level of expertise and efficiency that is hard to match with in-house resources. They have the software, systems, and experienced staff to process payroll more efficiently and accurately. Mistakes in payroll processing can lead to fines and penalties, so many businesses outsource to avoid such risks.

Payroll Outsourcing Benefits

Outsourcing payroll services presents the following benefits: 

Cost Savings: By outsourcing, businesses can reduce the cost of hiring, training, and maintaining an in-house payroll department. Additionally, the reduction in mistakes can lead to fewer fines and penalties.

Time Savings: Payroll processing can be time-consuming, especially for businesses without dedicated payroll staff. Outsourcing frees up time that can be spent on core business activities.

Expertise Access: Outsourcing provides access to expert knowledge in payroll processing, tax regulations, and legal compliance.

Improved Compliance: Payroll outsourcing companies stay up to date with changes in labor and tax laws, helping ensure businesses stay compliant.

Better Security: These companies have secure systems that protect payroll data, reducing the risk of data theft, embezzlement, or tampering.

Enhanced Accuracy: Expert payroll providers are less likely to make errors, ensuring employees are paid accurately and on time.

Ease of Use: Many payroll outsourcing companies offer user-friendly platforms that allow businesses to submit payroll data easily and access reports.

Scalability: As a business grows, the payroll process becomes more complex. Outsourcing companies can easily adapt to changes in a business’s size and structure.

Employee Access: Some providers offer employee self-service portals where employees can view their pay stubs, W-2s, and PTO balances.

Integrated Services: Many payroll outsourcing companies offer additional services, like HR and benefits administration, providing an integrated solution for businesses.

Best Practices for Outsourcing Payroll

When outsourcing payroll, it’s essential to maintain a level of oversight. Regularly review the reports provided by the payroll company, and conduct audits to ensure accuracy. Remember, the ultimate responsibility for payroll accuracy and legal compliance lies with the business, not the provider.

Make sure to provide accurate and timely data to the provider. Errors or delays in data can lead to mistakes in payroll processing, even with the best outsourcing companies.

Also, businesses should ensure their provider is reputable and trustworthy. Providers will have access to sensitive employee data, so it’s critical they have robust security measures in place. Consider companies that are well-established in the industry and have a strong track record of serving businesses of your size and in your industry.

Payroll Outsourcing Companies

Listed below are 13 payroll outsourcing companies you can choose from: 

1. Bambee

Regarded as one of the best payroll outsourcing companies, Bambee specializes in providing affordable HR services to small businesses. While they don’t handle payroll processing directly, they can work with other providers to manage the HR side of payroll, like onboarding, offboarding, and maintaining compliance.

2. OnPay Payroll Software

OnPay is a comprehensive, cloud-based payroll service known for its simple and straightforward approach. The platform covers automated payroll, benefits, and HR tools, making it a suitable choice for small to mid-sized businesses.

3. ADP Payroll

ADP is one of the oldest and most well-known providers in the payroll industry. They offer scalable solutions that can serve small businesses to large enterprises, with additional offerings in HR management, benefits administration, and compliance services.

4. Paychex Payroll

Paychex is another renowned name in the payroll outsourcing industry. The company offers services to businesses of all sizes and in various industries. Its robust payroll system ensures accurate pay computation, tax filing, and compliance management. Additionally, it provides HR support, benefits administration, and retirement services.

5. Gusto Payroll Software

Gusto is known for its user-friendly software and excellent customer support. They offer full-service payroll solutions, including automatic payroll, tax filing, and an online portal for employees to check their pay stubs, tax forms, and benefits. Gusto also provides HR tools, making it an integrated solution for businesses.

6. Paycor

Paycor’s platform is designed to meet the needs of small to mid-sized businesses, offering payroll services and HR solutions. The service covers automated payroll, tax compliance, and timekeeping tools. Its user-friendly interface and strong customer support make it a solid choice for businesses that want a simple but efficient payroll solution.

7. Intuit QuickBooks Payroll

QuickBooks Payroll by Intuit is an ideal payroll solution for businesses already using QuickBooks for their accounting needs. It provides full-service payroll, automated tax and compliance, and integrates seamlessly with QuickBooks accounting software. This integration allows for real-time data updates, giving accurate insights into your business’s finances.

8. Deluxe

Deluxe offers payroll services along with a range of other business solutions. Its payroll solutions include payroll processing, tax filing, compliance support, and employee self-service options. The company is known for its strong security measures and reliable customer service, making it a trustworthy option for businesses.

9. Zenefits

Zenefits provides an all-in-one platform for payroll, benefits, and HR functions. Its unified platform allows businesses to streamline their processes and manage these critical aspects from a single place. Zenefits’ system is designed to automate as many tasks as possible, easing the administrative burden on businesses.

10. SurePayroll

SurePayroll, a Paychex company, offers online payroll services primarily for small businesses. Its services include automatic payroll, tax filing, and an online portal for employees. SurePayroll’s service is known for its simplicity and convenience, and their customer service team is available for support when needed.

11. TriNex

TriNex offers flexible and scalable payroll solutions designed to adapt as your business grows. They provide full-service payroll processing, tax compliance, time tracking, and HR solutions. Their platform is known for its robust features and customizable options, allowing businesses to tailor the service to their specific needs.

12. Insperity

Insperity offers a comprehensive suite of outsourced HR services, including payroll processing. Their services include everything from tracking time and attendance to processing payroll and managing employment tax compliance. Insperity aims to provide businesses with a complete human capital management solution.

How To Choose The Best Payroll Outsourcing Company

When looking to hire a payroll outsourcing company, you should consider the following factors: 

Understand Your Needs: The best payroll service for your business depends on your unique needs. Do you need a basic payroll service or a comprehensive solution that includes HR and benefits administration?

Consider Size and Scalability: Some payroll services specialize in small businesses, while others cater to larger enterprises. Choose a service that fits your current size and can scale with your growth.

Evaluate Features and Ease of Use: Look for a payroll service that offers the features you need, like direct deposit, online paystubs, or an employee portal. Also, consider the usability of the platform.

Assess Customer Support: A payroll service should provide strong customer support to answer your questions and resolve issues quickly.

Check Pricing Structure: Payroll services can have different pricing structures. Some charge per payroll, while others charge per employee. Make sure you understand the pricing and that it fits within your budget.

Frequently Asked Questions (FAQs)

Here are answers to some of the most frequently asked questions about payroll outsourcing 

1. What is payroll outsourcing?

Payroll outsourcing is the process by which businesses delegate their payroll responsibilities to an external payroll provider. This includes managing employee salaries, calculating deductions and withholdings, and ensuring the correct remitting of payroll taxes. This enables businesses to focus on their core operations while relying on the expertise of payroll outsourcing providers to handle complex payroll tasks.

2. How does payroll outsourcing work?

Once a business decides to outsource its payroll, it shares its employee data, including pay scale details, work hours, and benefits, with the payroll outsourcing provider. For each pay period, the business provides updates about any changes. The payroll company processes this data, calculates net pay, distributes payments to employees, and takes care of tax computations and filing. Payroll outsourcing providers also deliver payroll reports to the business, ensuring transparency and compliance with tax and labor laws.

3. Why do businesses outsource payroll?

Businesses choose to outsource payroll to payroll companies for several reasons. It saves time and resources that would have otherwise been spent on managing complex in-house payroll functions. Outsourcing also provides access to expert knowledge, ensures legal compliance, improves accuracy, and minimizes risks associated with payroll errors and inconsistencies. It also enables a business to scale its payroll operations as it grows.

4. What are the benefits of payroll outsourcing?

Outsourcing payroll to specialized payroll outsourcing providers comes with multiple benefits. These include cost savings, access to specialized expertise, enhanced compliance with laws and regulations, increased security, better accuracy in payroll processing, ease of use, scalability, employee access to pay information, and access to integrated HR and benefits services.

5. What should I consider when choosing a payroll outsourcing company?

When choosing a payroll outsourcing provider, consider your business needs, the size and scalability of the potential service provider, the features they offer, the quality of their customer support, and their pricing structure.

6. Can outsourcing payroll save my business money?

Yes, outsourcing payroll can save your business money in several ways. It eliminates the need for hiring and training an in-house payroll team and reduces overhead costs. It also minimizes the risk of costly errors and penalties related to payroll taxes. Lastly, it can free up your team’s time, allowing them to focus on more strategic tasks that can grow your business.

Josh Fechter
Josh Fechter is the founder of HR.University. He's a certified HR professional and has managed global teams across 5 different continents including their benefits and payroll. You can connect with him on LinkedIn here.