While some small businesses handle payroll in-house, outsourcing offers a number of advantages to help you get ahead. Here are 8.

Today, outsourcing is more common than ever before, with 73% of businesses of all sizes outsourcing some aspect or all of their payroll. Why? Outsourcing offers big perks, such as: 

1. Cost Savings. One of the most compelling reasons for outsourcing payroll is cost savings. Managing payroll in-house requires hiring full-time employees or allocating existing staff to handle payroll processing. This includes salaries, benefits, the cost of training, purchasing payroll software, and IT-related expenses.

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Because you pay for only the services you need, the cost to outsource is often less than the cost to expand your HR team. According to a Deloitte study, 62% reported savings of 10% to 25% when they outsourced payroll, while the remaining 38% reported savings of 40% or more.

2. Saves Valuable Time. Business owners juggle hundreds of tasks, with payroll demanding the most attention. As the number of employees grows, the complexity and time requirements increase with bonuses, overtime, benefits, deductions, and varying tax rates in different locations.  

According to the Deloitte survey, payroll staff spends the most time manually running payroll, especially loading inputs and making adjustments. Other time-consuming tasks include reconciliation, audits, controls, and data entry. For companies that outsourced payroll, this time was cut in half.

3. Improves Accuracy. Simple payroll mistakes can lead to costly fines, lower employee morale, and, in some cases, legal issues. 

According to an Ernst & Young study, the average payroll accuracy rate was 80%, with companies making an average of 15 mistakes per payroll period—each costing an average of $291. The most common errors driving high direct costs include failing to enter sick time, which has the highest cost per error, $705. Other costly errors include onboarding, failure to add an employee to the system promptly, visa status updates, W-4 setup, scheduled deductions, misclassifications, and failure to comply with new overtime and tax regulations. Other errors include not distributing W-2s or 1099s on time, record-keeping and tracking time mistakes, and miscalculating pay.

In some cases, errors can also result in legal issues. Approximately 1 in 6 companies face litigation related to payroll errors. On average, companies surveyed received 32 legal complaints, spending about $3,200 in direct costs and 29 hours of staff time to settle.

4. Access to a Team of Experts. Payroll can be time-consuming, complex, and prone to costly errors - areas where dedicated expertise is needed. With limited staff, small businesses may need help managing payroll while juggling other responsibilities.

Based on the Deloitte study, the typical payroll employee has an average of 12 years of experience, including over three years of advanced payroll system experience and approximately four years of postsecondary education. They work about 25 hours of overtime per month and dedicate around 20 hours per year to training to stay current. Adding new payroll talent to your team generally takes about four to six months to get them up to speed on your payroll processes.

Outsourcing can help by connecting you with a team of payroll experts who understand complex payroll issues and have the know-how and tools to accurately calculate wages, taxes, and overtime while keeping you in compliance with federal, state, and local laws. This access to expertise reduces the likelihood of mistakes and ensures your payroll runs smoothly.

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5. Compliance with Tax and Labor Laws. Navigating compliance can be challenging, especially for businesses operating across multiple states. According to a Deloitte study, over 40% of small businesses face an average fine of $850 for payroll tax issues, primarily due to late payments. Outsourcing can ensure you remain compliant and stay on top of all applicable regulations.

6. Access to Cutting-Edge Technology. Outsourcing gives businesses access to advanced technology without the high upfront costs of buying and maintaining software. Most payroll providers offer cloud-based platforms, which include features like direct deposit, self-service portals, and mobile apps for easy access.

7. Scalability for Growing Businesses. As you grow, outsourcing makes it easier to handle more employees, different payroll schedules, diverse benefits, and increasingly complicated tax requirements.

8. Peace of Mind. By entrusting experts to handle your payroll, you gain peace of mind knowing that your employees are accurately compensated and your business stays compliant.

Get Back to Running Your Business, Not Your Payroll

When it comes to payroll, it's important to partner with a reliable provider that saves you time and money without compromising on key features. Outsourcing to an IRS-certified PEO, like Propel HR, streamlines the time-consuming payroll management process, including employee onboarding, payroll tax deductions, and timely IRS deposits.

In addition, we also handle your benefits, compliance, and other important HR-related tasks and can recommend custom solutions based on your industry, size, and location. By taking care of all this and more, you can get back to running your business, not your payroll. For more info, just give us a call at (800) 446-6567 or visit www.propelhr.com. 

PLEASE NOTE: This information is for general reference purposes only. Because laws, regulations, and filing deadlines are likely to change, please check with the appropriate organizations or government agencies for the latest information and consult your payroll specialist and/or employment attorney regarding your responsibilities. In addition, your business may be exempt from certain requirements and/or be subject to different requirements under the laws of your state. (Updated September 19, 2024)

About Propel HR. Propel HR is an IRS-certified PEO that has been a leading provider of human resources and payroll solutions for more than 25 years. Propel partners with small to mid-sized businesses to manage payroll, employee benefits, compliance and risks, and other HR functions in a way that maximizes efficiency and reduces costs. Visit our new website at www.propelhr.com.