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Compare In-House Payroll Processing vs Outsourcing Costs

In-House Payroll Processing Overview

When you handle payroll in-house, employees on your staff manage all activities related to payroll processing, including keeping track of hours worked, issuing checks, withholding taxes and reporting wages to the government.

Payroll is a complicated process, due to the long list of ever-changing government regulations, so most companies that handle the task in-house purchase payroll software to walk them through the process.

How Much Does In-House Payroll Processing Cost?

The cost of handling payroll in-house depends on who is handling the task and how much they are paid. If you assign payroll to an existing employee in addition to his or her regular duties, there’s virtually no cost. If you hire a new employee specifically to handle payroll, the cost is equivalent to that person’s salary and benefits.

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In-House Payroll Processing Pros

  • Operate on your own schedule - When you handle payroll in-house, you don’t have to worry about meeting another company’s deadlines. You can handle tasks on your own schedule, even outside of regular business hours.
  • Correct errors quickly - Errors can be corrected quickly and easily. If an employee in underpaid, for example, you can issue a new check immediately, rather than waiting days for the payroll company to process the change.
  • Accommodate special requests - Special requests are easier to accommodate, too. See to it yourself that requests such as custom reports or one-time deductions are handled quickly and accurately.
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In-House Payroll Processing Cons

  • Compliance issues - Tax laws and filing requirements are extremely complex, and the government assesses penalties for errors or late filings. Complying with all of the regulations can be a monumental task, particularly for small businesses.
  • Time consuming - Handling payroll in-house consumes a significant amount of employee time. That time could be spent doing tasks such as making sales or growing the business.

Payroll Outsourcing Overview

Companies that outsource payroll hire an outside service to handle most of their payroll functions, including calculating wages and salary, withholding taxes, issuing checks, reporting wages to the government and managing direct deposit. You can hire a payroll company to perform just some of these tasks or all of them.

How Much Does Payroll Outsourcing Cost?

According to Entrepreneur.com, basic payroll service costs about $.80 to $2 per check, in addition to a base account fee. Additional services such as direct deposit and tax filing can cost $4 to $9 per payroll period.

In general, small- to medium-sized business should expect to pay about $100 per employee, per year to outsource payroll. That includes extra services such as direct deposit and W-2 filing. There are many online payroll companies available such as Gusto and SurePayroll.

Payroll Outsourcing Pros

  • Better compliance - Payroll services are experts in complying with complicated tax laws. And there’s peace of mind in knowing that someone else is responsible calculating tax payments correctly and submitting tax deposits on time.
  • Saves time - With outsourcing, you free up staff time to focus on other, more important tasks, such as growing the business.

Payroll Outsourcing Cons

  • Scheduling constraints - Outsourcing requires you to work within the schedule of the company that you hire. You’ll have to meet that company’s deadlines, and it may not be possible to make changes outside of business hours.
  • Takes longer to fix errors - When another company is handling your payroll, correcting errors is a longer process. A simple task such as reissuing a check could take several days.
  • Difficult for special requests - Special requests will be more difficult when you’re dealing with an outside company. Requests such as custom reports or one-time deductions will take longer to process.

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Author: Ashley Smith


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