Should Your Service Business Do Payroll In House or Should You Outsource It?

Owners of small service companies have to make all the hard decisions of what they do themselves and what they delegate. There is always the temptation to try try to do everything yourself, to keep control, to manage the details. This is natural because there is always risk involved in letting other people take over.

But part of being a manager is learning how to effectively delegate. That delegation can be to someone in your company or to another company entirely.

Today lets take a look at payroll. Every company with employees has to do it — usually twice a month.

Every service company owner has to decide if this task is done in house or if the work should be off loaded to a payroll company. Chances are you’re already doing one of the two options. Below is a list of pros and cons for each. Hopefully what you find will support what you’re already doing. But if not, there will also be a few tips on how to make the switch.

Pros of Outsourcing Your Payroll Department

Cost savings — If it costs less to have someone else do it, that’s big check in its favor. Those costs though can come in two forms. First in the traditional quantifiable sense, like wages and software. Secondly, outsourcing payroll can reduce opportunity costs. You can spend the time you once spent worrying about managing payroll on more productive things, like finding new customers or figuring out how to increase the renewal rate on your service agreements.

Flexibility — If your service company is growing, outsourced payroll can be better equipped with the infrastructure and know-how to handle a larger workload.

Cost tracking — You know exactly how much payroll costs when your outsource. You get a bill and can track it easily. With internally managed payroll can be more difficult to know exactly how much the function costs.

Frees up capital — If your company is just getting started or just taking off, outsourcing payroll can usually cost less in the short term than setting up an internal payroll process . This means you can put your money into other parts of your service business that will have a bigger impact on growth and the bottom line.

Best Practices — Chances are you’re not a payroll expert. A good payroll company will deliver the best practice systems, the latest technology and experts to manage it. You can avoid the investment in software and training all together.

Cons of Outsourcing Your Payroll Department

High Costs — It is possible to save money by outsourcing payroll. However, not all payroll companies are created equal. And not all service companies have the same payroll needs. Your company could end up paying more to have another company handle your payroll needs if your process is not too complex. With an outsourced solution, you may end up paying for service you don’t need.

Poor Service — With an outsourced solution, you may not get as quick of a response or as good of service as you’d expect from an employee working in house. You may have to wait for help, or be put on hold, or not have your issues resolved the first time.

Difficult to Access Employee Data — It can sometimes be difficult to access important employee data from outsourced payroll companies. For example, you might want to quickly find out your company’s payroll tax, but the information might not be as readily available as it would be if you had a payroll manager in house.

Data Security — Modern security technology does take care of many of these problems. However, some owners have a difficult time trusting outside companies with vital employee information. Trust is necessary with any outsourced service.

Mistakes Are Harder to Correct — If a payroll mistake occurs, it may take longer to correct the error. In any company, payroll is a sensitive area and some managers might not be comfortable letting outsiders handle it.

Does your company outsource its payroll? What factors would convince you to switch from what you’re doing now to the alternative?

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