What is payroll outsourcing? definition, considerations, and best practices
Payroll service providers only handle making payments to your employees. Some mistakenly believe outsourcing payroll services include HR services that help you hire new people, but HR and payroll outsourcing are different. Human resources can be outsourced to a separate service, and while some companies offer both (like Deel), a payroll company only handles owners draw vs salary payroll. The terms “payroll service provider” and “payroll services” are often used to apply to either type of organization. We recommend checking out our 2024 guides for the best cheap payroll services, best payroll services for small businesses and best PEO services.
To make things more confusing, these laws change often — and slipping up can have serious consequences. When you outsource to a global payroll specialist, you also avoid other potential costs due to noncompliance, such as miscalculated overtime or an incorrectly submitted tax form. Outsourcing ensures that you’re in knowledgeable hands, and helps you avoid fines, penalties, and reputational damage.
Now that you’ve weighed the pros and cons of outsourcing payroll, let’s break down some common features to keep an eye out for in payroll outsourcing services. Your company is ultimately responsible for employee tax withholdings and payroll tax deposits to local, state, and federal revenue departments. You can outsource those responsibilities, but you’ll pay the price for any mistakes. Read up on this and other regulations that affect how you pay your employees.
How Long Does It Take To Get Set Up With Paychex Services?
Your company would need to pay overtime for anything over that. Payroll outsourcing costs generally depend on payroll frequency, total number of employees and the specific services that are being outsourced. In most cases, there is a per-payroll processing fee and an accounting principle vs. accounting estimate: what’s the difference annual base fee.
- It’s no surprise, then, that many organizations are outsourcing their payroll — or at least considering it.
- For companies newer to outsourcing, however, it’s worth taking plenty of time to select the right provider and to make sure all other aspects of an arrangement check out.
- You can take the pressure off your existing team by outsourcing certain tasks.
- ADP works with employers to determine the right payroll setup for their business, whether it’s a start-up company or an international enterprise.
- When analyzing cost, it’s important to remember that outsourced payroll has a knock-on effect.
What Is Outsourcing?
As well as being dishonest, these costs can wreak havoc with your hiring budget. As discussed, non-compliance — whether accidental or otherwise — can land your business in hot water. It’s no surprise, then, that many organizations are outsourcing hedge fund administration services their payroll — or at least considering it. But outsourcing isn’t necessarily the right approach for every business.
Outsourcing payroll will help free up time to focus on your company. If you do not want to outsource payroll, consider using software to process your employees’ payments and taxes. They likely use employees with task-specific training and have all the necessary software on hand. Finally, the client shares all relevant information the provider needs to complete the payroll functions it will assume.
Compliance across borders
It also includes managing information relevant to the tax process such as health insurance and workers’ compensation claims. Having an international team increases innovation, creativity, and diversity—but it also complicates payroll management. You have to navigate different currencies, exchange rates, bank laws, and compliance requirements. Small businesses may benefit from working with a contractor as it’s less costly. If you choose this option, ensure your contract with the accountant is clear to avoid potential employee misclassification issues.
If a company is outsourcing internationally, it shouldn’t assume that it can ignore employment regulations in the provider’s country, as these can be very different from those in the United States. When choosing a payroll outsourcing provider, it’s important to remember what’s at stake. A good provider will make things easy for the client, but client companies shouldn’t be lured into a false sense of security. Even the best payroll managers are prone to mistakes or data breaches. Take the time to make sure a provider is both trustworthy and experienced to minimize these inherent risks of outsourcing. In many cases, companies outsource payroll because they’ve determined it to be more cost-effective than managing payroll in-house.
Collaborate closely with your provider
A reliable payroll partner will provide your employees with self-service portals, which enable them to check their pay stubs, keep an eye on their benefits, and tweak their tax details if applicable. Payroll providers are specialists in their field, which means it’s their job to stay on top of the latest tax laws and regulations around the globe. For a small in-house team, assembling such expertise may be an unrealistic demand. International payroll outsourcing usually involves working with multiple third-party providers across the globe, which can present additional difficulties around compliance, currency, and communication. According to HR Dive, 61% of respondents outsourced payroll processing in 2022.