Payroll software is a purchasable service for businesses that offers a cloud-based solution for the management, maintenance, and automation of employee payments and taxation. A payroll software that is conjoined to a company and properly curated to it is one of the most effective tools to help any business remain compliant with tax laws and reduce costs.
For businesses looking to employ the benefits of payroll systems there are two options available to businesses: hiring a team to manage payroll in-house, or outsourcing. Given the U.S. payroll services industry (companies involved in the was worth $48.4 billion in 2019, and has only been growing since then, it would seem that a large proportion of companies outsource this service. This article seeks to explore why.
What Is Payroll Outsourcing?
Outsourcing payroll management to a third party is an option for businesses that don’t want to engage in this daunting responsibility allowing an internal employee within the company to process payroll in-house.
Payroll outsourcing is also commonly referred to as several other terms. The term ‘managed payroll’ may be used to refer to the same concept, the same is true for the term ‘payroll bureau’.
Why Do Companies Outsource?
Compliance With Legislation
There are over 150 pieces of legislation affecting the way in which companies are meant to manage payroll at the moment. This is of course extremely time-consuming and complicated for an entire company (let alone a single, in-house worker) to track and be responsible for, especially when these rules are ever-changing.
Choosing an in-house payroll manager is just risking everything for no clear benefit, as the punishment for mismanagement of payroll is steep. This is one of the central reasons behind most companies’ decision to outsource the management of their payroll. The access that outsourcing grants to complex payroll calculation software enables it to remain in compliance with ever-fluctuating legislation.
Good payroll software enables your business to access the help of talented payroll experts, as well as regular updates that ensure every pay run you make is compliant with the most recent tax laws.
Saving Money and Time
Another key benefit of outsourcing is that it enables you to direct your time towards more important tasks so you can grow your business. Whilst effectively managing payroll is extremely important, that time would be much more fruitful if invested into other tasks that help improve the business’s standing in its industry.
Just to illustrate how much time could be saved if the business did not have to engage in payroll management. Inputting data, Printing, reporting and sending files to the federal government, distributing wages and payments to employees and potentially making mistakes such as re-running payrolls and then having to correct such mistakes in order to avoid fines all add up.
The value that can be gained from Investing in the outsourcing of payroll services increases with a business’s size. Once the number of employees a company has exceeds a specific threshold (normally around 30-50 employees), payroll software becomes far more worth the money.
This is because the hidden costs of not opting for the outsourcing of payroll services increase with a business size. Most notably, they are subject to exponentially increasingly large risks, must invest more time to do the job (as there are more employees to manage), and it can negatively affect the recruitment and retention of new workers.
Managed services enable businesses of a plethora of sizes to eliminate these issues, or at the very least, to mitigate the risks associated with them. Businesses also get to experience the joy of a completely tailored service that will handle everything on their behalf, such as the processing of salaries, distribution of benefits and bonuses and the reporting of taxes. This leaves you to focus on developing your business.
On balance, the question of hiring a payroll team or outsourcing is primarily dependent on the size of a business, as the benefits acquired from outsourcing begin to increase exponentially past a certain tipping point. For more information on the best payroll services, please see The Really Useful Information Company’s (TRUiC) website for an article exploring the subject in more detail.