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Pros & Cons Of Outsourcing Payroll

company job Payroll has become a thankless task in business, and manually conducting payroll can lead to errors. As a result, many more companies are outsourcing their payroll today, which helps ensure accuracy and allows the business owner to fully concentrate on operating and managing the other aspects of the company.

However, there are many pros and cons associated with outsourcing payroll roles. Knowing them can help determine if this method of completing payroll is best for a small business.

Outsourced Payroll Pros:

Business owners can enjoy many benefits by outsourcing their payroll duties to a third-party payroll provider. Some of the pros of outsourcing payroll include:

Expertise and Knowledge

Outsourcing payroll duties to the professionals leads to employees being paid accurately and on time more often than not. Additionally, using an experienced accountant to run payroll offers a guarantee that taxes are correctly filed, and the business is sticking to all the federal compliance requirements.

Finally, hiring an accountant can ensure that the company is on top of any payroll changes and provide a heads up to any potential legislative changes regarding payroll and taxes.

Cost Savings

Business Meeting Though some smaller businesses may not feel they have room in their budget to hire a third-party payroll service, several companies offer affordable prices to help small business owners.

Additionally, by hiring a payroll company, the owner does not have to assign an existing employee, or they do not have to spend valuable time handling payroll issues. Ultimately, long-term, outsourced payroll can help save business owners money, significantly when the company is not fined for improper filing or late tax payments.


Outsourcing payroll duties helps business owners save time and focus on dealing with the responsibilities of owning a business. Additionally, a payroll company or expert can help identify errors, eliminating additional time wasted looking for payroll calculation errors.

Plus, accounting services stay current on all tax and payroll laws and regulations, saving business owners time by not having to research this information.

Data Security

Using a reputable third-party payroll company helps reduce the risk of a cyber-attack or loss of data. Larger payroll companies have security policies with many defensive measures in place. Additionally, these companies have backup and recovery plans to ensure secure payroll data, employee information, and company tax records.

Fewer Errors

Employee Stock Image

Payroll errors can lead to hefty fines from the IRS. Outsourcing payroll to a third-party provider allows business owners to relax, knowing the experts can handle all payroll needs with fewer errors than manually entering payroll.

Accounting firms that handle payroll processes for companies have checks and balances in place to help ensure employees are paid on time and accurately. If there is an error, the payroll company can swiftly correct the errors and help business owners avoid fines from the IRS.

Lower Employee Turnover Rates

When employees are paid on time, and accurately, they are less likely to leave a company over payroll-related frustrations. Outsourcing payroll allows business owners to make sure their employees are paid without errors or delays, potentially lowering turnover caused by this particular issue.

Outsourced Payroll Cons:

Though there are many benefits to outsourcing payroll to another company, several negative things may deter business owners from outsourcing their payroll. Some of the cons associated with outsourcing payroll include:

Loss of Control

Some business owners like to feel they are in control of their company, including the payroll process. However, outsourcing payroll means someone else handles all payroll aspects, which may take some power away from the owners. To reduce the loss of control, hire a company with a transparency policy and one that is willing to discuss all payroll information.

Data Breaches & Privacy Issues

Though most payroll companies have many security measures in place, there is always the risk of a data breach. However, there is a risk of a data breach when handling payroll anyway, and not necessarily outsourcing it. Before hiring a third party to manage payroll, ask about their security measures and what they can do to help reduce the risk of a data breach.

Customer Service

Depending upon the third-party payroll company’s policy, customer service could be a pro or a con associated with outsourcing payroll duties. For example, some companies have a dedicated customer service team available to help answer questions, address payroll concerns, and assist in any possible situation when business owners need help with payroll.

On the other hand, some companies do not have the staff dedicated to customer service, and in some situations, it is difficult to get someone on the phone who can help when needed. In this case, outsourcing payroll could be an issue, especially if the business owner cannot reach someone at the company to fix an error or answer payroll-related questions.

In most cases, business owners benefit from hiring a third-party company to help with payroll. Though there are some negative things related to outsourcing payroll, the benefits often outweigh the cons.