Outsourcing Payroll Processing or use in house payroll software

One of the fundamental questions that companies need to answer related to their payroll processes is to whether purchase payroll software to manage these processes or to utilize payroll outsourcing services. Which is best depends on many things, as they are fundamentally different in both the way they are set up and the number of functions the business wishes to handle themselves. Tax processing is tightly coupled with payroll, so companies would just outsource everything. Those who felt strongly about keeping payroll in-house would have to hire CAs or others with the specific skills and knowledge base to keep up with the latest payroll tax regulations.

Many Small sized businesses choose to outsource the payroll function because of the intricacies of the payroll processes. Some companies outsource the payroll function simply to avoid having to keep track of ever-changing tax-filing requirements. They may chose to have payroll software if it is simpler less complex payroll software packages that meet the basic needs of the business

Many medium sized companies employ a specialist wages department to perform these functions. Some medium sized companies may still choose to outsource the payroll function leaving many of the technical issues that might be encountered to a specialist payroll service.

Larger companies require payroll software that has incorporated within it all the potential pay scenarios and also capable of dealing with high numbers of employees. Large comprehensive packages can be complex to operate and require specialist wages staff.

Main benefits of outsourcing payroll to a service provider

· It allows staff to focus on core business instead of taking a lot of time and effort on payroll

· It makes compliance with tax rules and government regulations easier and more effective. There is no need to keep up to date with complex changing legislation by your payroll staff.

· Reduce cost as payroll service provider has scale

· Time saving when calculating the payroll deductions and dealing with different and sometimes complex employee circumstances.

· Using a professional outsourcing service to advise on potential payroll problems and difficulties.

· Payroll service providers almost invariably use a payroll software package and normally produce accurate income tax and national insurance deductions and pay records reducing the prospect of problems with the tax authorities.

Disadvantages of outsourcing payroll processing is that the company may lose a kind of control on the payroll as changes in the payroll have to go through service provider. The other is that they will have less flexibility in how payroll is produced and what reports are generated.

Alternative to outsourcing the payroll is to acquire and use payroll software.

· In-house payroll solutions are more flexible and have more ability to control how payroll is produced and how reports are generated, especially for those companies with complex accounting requirements.

· Payroll software is cost effective against outsourcing the payroll as it is a one time investment with more flexibility

· It retains control over the payroll in-house.

· Purchasing payroll software can save significant time compared with manual calculations


Author on various topics for softwares, saas softwares and cloud computing for SMEs.

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