With so much information available online about the advantages of outsourcing payroll, it seems like an easy and cost-effective way to go. But as in-house payroll software has improved and become more capable and affordable in recent years, outsourcing payroll is no longer the most efficient option for small and medium-sized businesses.
Let’s take a look at the real costs of outsourcing payroll versus in-house payroll processing.
Cost Benefits of In-House Payroll
At first glance, outsourcing payroll may seem cost-effective because you are avoiding the up-front costs associated with purchasing payroll software.
However, numerous studies show that the cost of owning your own in-house payroll software drops dramatically in the second year of ownership.
By contrast, the expense of outsourcing payroll will – at best – remain constant. But the more likely scenario is that your payroll outsourcing fees continue to increase over time and you have little control over it.
For example, basic payroll processing services include a cost per check plus a base account fee that varies depending on a variety of factors including the number of times you issue paychecks per period and the number of employees in your company.
Additional services such as W-2 printing, 1099 mailing, custom reporting, or even last minute change fees can increase the cost of each outsourced payroll substantially. And because you don’t own the payroll software or process, these expenses simply compound every year.
Did You Know?
In addition to the profits made on service fees, outsourced payroll providers make extra profit by collecting and holding your tax payments in interest bearing accounts, which they release to local, state, and federal agencies at the very last second. If you kept your payroll process in-house, you could earn and invest this “float” interest for your company’s own benefit.
Better Control with In-House Payroll
Most companies don’t realize the significant loss of control over the payroll process until after they’ve committed to outsourcing. Not only do you lose control over sensitive wage and benefits data, most payroll service providers mandate that you meet their deadlines and work on their schedule. If there’s a problem with the payroll information you submit to an outsourced provider, you wait on their schedule for corrections to be made and potentially delay the release of paychecks (there’s no faster way to impact employee morale and satisfaction than to delay payday!). In addition, outsourced providers typically tack on fees and penalties to make the corrections.
Bottom line … with in-house payroll software, you get maximum flexibility over last-minute changes and still get payroll processed on-time and on your schedule..
What About Tax Compliance?
If you think you have to spend hours researching and keeping up to date on ever-changing tax rates and rules, think again. In-house payroll software like Sage HRMS Payroll offers continuous tax table updates and automatic calculates all federal and state taxes. And with an optional electronic filing service offered by Sage, you don’t have to do anything other than run payroll and let Sage HRMS take care of the rest.
By the way, using an outsourced payroll provider will not necessarily absolve your company from liability for noncompliance with payroll taxes. If you miss a deadline, pull the wrong data, or make errors in the information you send to the provider, your company is still liable for any resulting late fees or penalties.
Breaking Out of “The Way It Has Always Been” Habit
We are all creatures of habit, which is why some companies realize they might be overpaying for outsourced payroll but don’t take action because outsourcing is the way it has always been done.
Similarly, many executives think they can try outsourcing for a short time and then quickly return to their old payroll methods if the cost savings aren’t realized. But that isn’t what really happens – the more time that passes, the harder it becomes to bring a process back in-house.
But there’s no reason to settle for a mediocre outsourced payroll service that increases fees every year. Break out of your payroll routine and take back control of your payroll expenses because the cost savings of in-house payroll are significant and can be realized year-after-year.
15 Minutes Can Reveal Your Real Cost of Outsourced Payroll
We encourage you to take advantage of our Free Customized Payroll ROI Calculation.
In less than 15 minutes, we’ll provide you with a detailed estimate that provides a very clear and concise picture of how much your company can be saving each year.
Staying In Control
With this free guide, you’ll find comparisons of how in-house payroll software stacks up against outsourcing in terms of control, payroll scheduling, data security, and reporting flexibility.