Outsource or In-House: The Payroll Conundrum
The decision to run payroll in-house or outsourced has several issues to consider. Here we talk about those issues and offer a best of both worlds solution.
May 18, 2023
Running payroll can be a difficult process. It requires a working knowledge of various tax and health insurance laws and regulations. It requires a business to file payroll related forms with various government entities and staying current with tax payments.
However, business that run their own payroll are able always know exactly their current liabilities and assets without having to wait for data reports from a payroll service. No entry of payroll accounting data is necessary. Employees experience a smoother on- and off-boarding process. Perhaps most importantly, all company data always stays within company control.
When making a decision about whether to run payroll in-house or to use a payroll service, here are some advantages and disadvantages of each to consider:
In-house payroll advantages
- The business accounting system is always current with all liabilities and assets.
- No periodic updating of general ledger accounts is necessary.
- Smooth and instant on- and off-boarding of employees.
- Allows for more flexibility in the types and amounts of benefits offered.
- All company data is kept within the control of the company and not shared with anyone.
- Tax filings are kept within the business and under company control.
In-house payroll disadvantages
- Requires filing tax reports and making payments with various government agencies.
- Requires a working knowledge of various tax and health insurance laws and regulations.
- Often requires at least one person or department to be dedicated to handling payroll related issues.
Outsource payroll advantages
- Allows staff to focus more on other business needs.
- Worryies about tax filing deadlines are largely reduced.
- Other than funding the payments, the business does not have to concern itself with making tax payments.
- No special knowledge of payroll and health insurance laws is needed.
Outsource payroll disadvantages
- Business accounting system does not always reflect current liabilities and assets.
- A reconciliation between the business accounting system and the outsourced payroll data must be made.
- Payroll service fees may cost more than using existing employees to run payroll - especially if most payroll data is already automatically obtained (such as via connected time clocks).
- Business payroll data is in the hands of the payroll service which may not have sufficient data protection measures in place.
- For some businesses, such outsourcing of data may go against government regulations.
- Flexibility in benefits offered or the way they are administered may be reduced.
- Preparing payroll data for the payroll service may require significant effort, negating any significant time saving benefits.
Many of the above issues revolve around who has control of company data and the integration of payroll data with the accounting system. An ideal solution to these issues would be to gain the advantages of an outsourced payroll service while maintaining the advantages of running payroll in-house.
Outsource payroll duties but run it in-house
A unique solution to the in-house/outsource problem is to outsource the work of running the payroll but have that payroll run entirely on the business accounting system. This leverages the advantages of outsourcing and in-house payroll. Using this approach, all data is kept within the control of the business, business accounting system are always current on all payroll liabilities and assets, existing payroll data collection tools are fully leveraged and integrated, payroll benefits are entirely under the discretion of the business, employees are instantly on- and off-boarded, and specialized payroll knowledge is not required. Payroll tax filings are handled and tax payments are run through the business accounting system, maintaining business data integrity.
How it works
Using our Integrated Software for Business, Edward A.E. Rich & Associates can run your payroll for you on your system. ISB collects payroll data (such as employee time entries) automatically. We connect securely to your system via VPN each pay period to run the payroll, issue pay checks or direct deposit data, and automatically create tax payments. Pay rate changes, on- and off-boarding of employees, and other tasks that your business must already handle are entered directly into the ISB software, keeping all payroll data up to date. We partner with Osborne Robbins & Buhler, PLLC to make sure all tax filings are done correctly and on time. The employee portal that is part of the ISB software allows your employees to always know their payroll data.
The decision about running payroll in-house or outsourced is going to be different for every business. With ISB and our payroll service, that choice may have a simple answer.