In-house vs. outsourced payroll

Keeping your employees happy is a must for employers. Happy workers are typically more engaged and motivated, fostering a positive work environment that promotes creativity, innovation, and increased productivity.

Finding the right payroll and HR solution also plays a big role in providing a positive employee experience (and making your life easier as well!). There are a lot of options out there and many reasons for you to investigate them to find the best one for your business. After all, it’s likely that you or your team will be handling the daily tasks associated with payroll, HR, recruitment, people management, and more. You need to feel assured that you’ve found a true partner in your provider.

So, what exactly is the difference between in-house and outsourced payroll? Essentially, it all comes down to your people and technology. Both options have their benefits, but ultimately, the choice comes down to your business needs and the kind of involvement and control you want over your processes.

We broke down the differences between in-house vs. outsourced based on categories that directly affect your organization: time, control, cost, complexity, and access.

In-house vs. outsourced: Time

Time lost

Time matters when it comes to payroll. If you’re short-staffed and do not want to rely on an in-house payroll team, your best bet is outsourcing. The problem with outsourcing your payroll is that everything has to be done on your vendor’s watch. Some providers require you to have your payroll wrapped 4-5 days in advance, followed by your payment two days in advance. This means you have less time to get your work done every cycle, which is convenient and profitable for your provider – but is it the best option for you?

To help you determine how much time you can get back by going in-house, we created a handy-dandy Timing & Cashflow Calculator. Check it out to see where you can gain more time to complete your payroll.

Time spent

One of the biggest benefits of outsourcing is supposed to be the time you save letting someone else handle your payroll, along with saving on labour costs. But, you may not save as much on time and labour as you think. Larger enterprises (4K employees+) are typically able to turn around mass payroll files to their outsourcer for processing. But if you’re a smaller or mid-size business (200-3K employees), you likely still need software to enter some of your payroll data manually. And it doesn’t matter how an outsourcer processes a file, you or someone on your staff will still have to provide additional payroll data (timesheet data, PTO, salary information, etc). If you already have to collect and send that information, it doesn’t really take much more time or labour to handle your entire payroll process in-house.

In-house vs. outsourced: Control

Is your organization ready to hand over control to an outsourced provider? It’s definitely a question you’ll want to ask when deciding on your payroll processing strategy.

One drawback to outsourcing is feeling that you have little control over the payroll process, your data, and the accuracy of employee pay. Employee salary and benefits information is sensitive and needs to be handled securely and privately.

That, and that outsourcing just is not as flexible. In-house payroll software gives your organization complete control over your entire payroll process, from last-minute cheques to running trial payrolls for accuracy. Outsourcing does not offer that level of freedom. If you need to make last-minute changes, it is usually too late for the payroll run, and if your outsourced provider makes a mistake, the issue is frustrating to solve. It requires anything from contacting your provider and requesting changes or adjustments to waiting for the next pay period to compensate a new employee correctly.

From reporting to changing earning codes and more – an in-house self-service model puts you firmly in control.

In-house vs. outsourced: Cost

Price per employee (PEPM)

Payroll represents a significant portion of your organization’s costs. The cost of outsourcing depends on a number of variables (pay frequency, additional fees, off-cycle charges, etc.), but in general, you should expect to pay about $150-$200 per employee per year. If you choose in-house, you can expect to pay approximately 50% less than what you would pay for an outsourced solution.

Lost interest

But it’s the hidden costs that can affect your bottom line more significantly. When you outsource your payroll remittances, you forego interest income on the amount of your payroll until your employees get paid and your money ends up in your payroll provider’s pocket. Advanced payment to your outsourced vendor ties up company funds that could be deployed elsewhere. ‍Payroll outsourcing companies are earning hundreds of millions of dollars by holding onto your payroll dollars before your employees actually get paid. ‍These funds could be working for you earning interest income on purchasing inventory or other capital investments.

Cost and pricing transparency is key when exploring potential vendors. You don’t want to incur surprise charges and fees at every turn. We took a look at a number of extra charges businesses face with outsourced vendors and created a calculator for you to determine what extra charges you’re paying to your outsourced provider. Give it a try to see what you could be or already are up against.

In-house vs. outsourced: Complexity

“Complex” is a funny term in payroll and HR because it generally just means your business has more going on and needs specialized, automated processes to ensure everything stays in line. Businesses that have numerous systems like multiple business numbers or jurisdictions, collective bargaining units, and diverse payroll needs like unique benefit plans and union rules can be considered complex.  

Hands down, when dealing with what is considered complex, payroll and HR professionals are better off having a solution that they can configure and control. A modern, configurable in-house system should be designed to handle all the complexities associated with running your business, from GL integration and multi-union support to custom earning codes with configurable formulas.

In-house vs. outsourced: Access

It’s no surprise that payroll and HR systems that offer more control also offer greater accessibility for managers, admins, and employees. In this day and age, employees need autonomy over their information, from accessing their pay statements and T4s to being able to swap a shift in the middle of the night from a mobile device.

With an in-house payroll and HR system, you can maintain control over access for you and your employees. This access helps your organization stay on top of issues and changes as they arise.

When you hire an outsourced company to manage your payroll and HR, you hand your control over to a third party. That means your business is subject to their policies surrounding access. Depending on the system and vendor, it may not match up with your organization's needs, which can make access challenging for your team.

In conclusion

Payroll and HR professionals are already doing all the heavy lifting to align payroll and HR, which is why taking ownership of your processes makes perfect sense. If you’re processing pay for hundreds or thousands of employees across Canada, why trust the most important elements of the process to someone outside your organization? You may want to consider going in-house for control and greater productivity.

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Additional Reading Links

1. What is in-house payroll processing?
2. What is outsourced payroll processing?
3. In-House Payroll Savings Calculator