Small Business Payroll: In-house or Outsource?

Small Business Payroll: In-house or Outsource?

Posted by HR Division of Propel HR on 9/6/23 3:15 PM
HR Division of Propel HR
Find me on:
Posted on: September 6, 2023

While many small businesses handle payroll in-house, others choose to outsource. Here are a few reasons why.

Choosing the Right PEO

Payroll is one of the most important and time-consuming tasks of running a small business, ensuring that employees are compensated accurately and on time. As your business grows, you may be faced with the decision of managing payroll in-house or leaving it to the pros and outsourcing the process - a choice that can substantially impact your business. 

➡️➡️Read More: Is it Time to Change Your Payroll Provider?

DIY Payroll

Due to budget constraints and a desire for control, many small business owners handle their payroll in-house. This includes investing in software or, in many cases, manually calculating employee wages, deductions, taxes, and other compensation-related tasks.

AdobeStock_584501036_01Over time, calculating payroll, keeping up with taxes and deadlines, and dealing with discrepancies demand more time and resources and divert attention away from your core business activities. Without dedicated expertise, increasing payroll responsibilities can put your business at risk, leading to costly errors, penalties, and legal complications.

How Outsourcing Can Help

Outsourcing payroll can provide a lifeline for small businesses. Some of the benefits include:

Increased Efficiency. Handling payroll can be incredibly time-consuming, diverting valuable resources away from core business functions. When you outsource payroll, you streamline the payroll process, allowing you to reclaim time and resources to activities directly impacting the bottom line. 

AdobeStock_561565957_01Reduced Risks. Payroll is not just about distributing paychecks; it's also about adhering to a web of complex new and changing tax regulations, employment laws, and reporting requirements. Failing to comply with federal and local regulations can result in hefty fines and legal penalties. For example, misclassifying employees as independent contractors can result in penalties for failing to pay taxes, as well as back pay and benefits owed to the misclassified employee. Payroll experts keep up with all of the latest regulations, reducing the risk of errors, penalties, and legal complications from non-compliance. 

➡️➡️Read More:  Hidden Costs of Payroll Mistakes

Increased Cost Savings. According to an Ernst & Young study, 1 in 5 payrolls contain errors, with each costing a business an average of $291. While outsourcing payroll may seem like an added expense, it can lead to significant savings in the long run. The costs associated with hiring and training in-house payroll staff, purchasing software, and dealing with potential errors or penalties can add up quickly. Outsourcing eliminates these expenses and helps keep costs under control.

Access to More Expertise. Outsourcing can help you gain access to more skills , knowledge, and resources that you may not be able to afford on your own. Payroll experts have a deep understanding of labor laws, tax codes, and best practices. Their expertise can help you navigate complex payroll issues to ensure your payroll runs smoothly.

AdobeStock_479822365_01Enhanced Data Security and Privacy. Managing payroll involves sensitive employee information such as Social Security numbers, bank account details, and salary information.  Reputable payroll providers utilize advanced security measures to protect your data, ensuring that your employees' information remains safe.

Saves Time. By cutting out time-consuming administrative tasks, outsourcing frees up business owners and staff, allowing them to concentrate more on customers and revenue-generating functions.

Flexible and Scalable. Studies show that a majority of businesses face difficulties in managing their payroll efficiently as they expand and their workforce grows. Outsourcing can help businesses swiftly and seamlessly scale operations during change and through all stages.

Making the Decision

The decision to manage payroll in-house or outsource payroll comes down to your business's unique circumstances. Before you decide, consider the following:

AdobeStock_573935033_01Budget and Resources. Consider the financial responsibilities of in-house processing versus outsourcing. Calculate the costs of software, staff salaries (and time), and potential penalties against the cost of outsourcing.

Complexity. Evaluate the complexity of your payroll requirements. If your business has multiple locations, hourly and salaried employees, outsourcing provides the expertise needed to manage varying tax regulations in different states. 

➡️➡️Read More:  6 Ways to Protect Your Payroll

Future Growth. Consider your business's growth trajectory. Are you planning to expand your workforce? Will your payroll complexities increase? Outsourcing can offer the flexibility to accommodate changes as your business grows. 

Get Back to Running Your Business, Not Your Payroll

Ultimately, the decision hinges on the unique needs, budget, and goals of your business. Whichever path you choose, prioritizing accurate and timely payroll processing is essential to maintaining employee satisfaction, compliance, and overall business success.

If you’re managing payroll internally and it’s working for you, it’s a good idea to evaluate the cost-benefit to determine if it's still the best option for your business. If you're ready to outsource, you want to work with a reliable provider, such as an IRS-certified PEO, specializing in managing payroll to save you time and money without sacrificing key features. 

Choosing the Right PEO

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

Topics: Featured, payroll

Subscribe to our Blog for Fresh Weekly Content

Your HR Checklist For Q3

Stay up to date with new laws, deadlines and important changes related to payroll, ... Read More

PEOs are in the Business of Small Business

PEOs play a vital role in helping small businesses across the country thrive and survive.  Read More

3 New Employment Laws That Could Impact Your Business

New changes in three employment laws may have a significant impact on your business. ... Read More


HR Division of Propel HR

The HR Division is made up of a team of professionals with a vast level of experience and HR expertise, assisting organizations of all sizes and within a wide variety of industries. They readily partner with clients to address strategic and compliance challenges surrounding the employment life-cycle and the ever-changing laws that regulate it. Inquire below about how they can help you!