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Inhouse vs Outsourcing Payroll: Which is Better?

Author:
Jerika Holton
|
Feb 21, 2023
|

Inhouse vs. outsourcing. It’s a tightrope that most businesses must walk in order to figure out how to maximize resources and minimize costs. Would a particular process be done better or more efficiently by an outside firm? Do you have the staff or skills to tackle this part of running your business? Which option is the most cost-effective?

A common topic of the insource/outsource debate is payroll. Payroll is vital to your business, so figuring out how to run it can be stressful. Does your team have the time to learn a new software platform? Can an outside payroll provider be trusted with something so important? You might go back and forth with yourself many times before deciding, but Greenshades is here to help.

Gain a better understanding of the key difference between inhouse and outsourcing your payroll operations below.

What is the Difference?

In-house means that the company handles all payroll matters on its own with full internal control and systems. An in-house payroll person will manage timesheets, wage calculations, cutting checks, and direct deposits.

Simply put, payroll inhouse payroll means exporting some or all of your payroll administration to a third-party organization, giving them control of your data and functions. What this looks like:

  • Current staff handles tasks
  • The payroll process is customized to the business preferences
  • Complete control of software usage  
  • Complete budgetary control
  • Control over security systems
  • Control over Information

Cons of Outsourced Payroll

  • Reduced control of software usage
  • Reduced control of money
  • Time needed to correct mistakes
  • Difficult to immediately access data
  • Hidden cost

Staffing

In-house payroll solutions are managed by a company's own staff. The setup process may involve a learning curve for the payroll software, but can ultimately be a cost-effective option since the workforce is already in place. On the other hand, outsourcing payroll delegates the responsibility to a third-party, which can be suitable for smaller teams with fewer than 10 employees or companies that prefer not to handle payroll themselves.

Configured for Your Needs

Insourced payroll means the process is tailored to your company’s needs.  Run payroll how you see fit for your business without needing approval from the third-party provider when unexpected circumstances arise. With an insourced provider, everything is in your hands from start to finish.

With the outsourced option, you are forced into a rigid process. You also have reduced control over configuration and personalized customer support.

Control of Employee Data Provides Security

With insourced payroll, you have instant access to and control over your company’s data, including employee and business information. You also have control over the security measures in place to protect that data. With outsourced payroll, it can be difficult to access your data quickly, and you have less control over security. Since you must share employee data with a third-party provider, the risk of data breaches can increase.

According to HRDrive, UKG, a large payroll and HR outsourcing provider, faced security issues and lost employee data for PFChang's restaurant chain while storing it in their UltiPro system (now known as UKG Pro). Despite UKG's attempts to recover the data, it was permanently deleted during a change of providers. As a result, PF Chang's had to start fresh and rebuild their historical company data.

Greenshades estimates the time to rebuild historical company payroll data can range from a few weeks to several months depending on a variety of factors such as the size of the company, the amount of data to be rebuilt, and the resources available to complete the task.

Cost and Implementation

Inhouse Payroll

With insourced payroll, you will incur upfront fees for purchasing the necessary software, so budgeting for these costs is necessary. Costs vary widely depending on how comprehensive the software is. The implementation fee also depends on what platform you get; some low-cost options may lack some of the key features or support you need, whereas some pricier picks have far more bells and whistles than your business can use. Greenshades offers a solution with a low implementation cost, no surprise fees, unlimited pay runs at no cost, and cost-friendly robust packages.

Outsourced Payroll

With outsourced payroll, there can be cost savings if the expense is less than paying staff to run payroll. It is important to consider additional or hidden fees associated with payroll. One example is charging per pay run. Insourced providers like Greenshades do not charge for pay runs as opposed to larger organizations such as ADP.

Cash Flow Management

When you keep payroll in-house, you also keep your money for the entire process. The only time money leaves your accounts is when you pay the receiving agencies directly. When you outsource payroll, you must pay all liabilities at the time of each payroll run, including all taxes, deductions, benefits, and withholdings. There are also outsourcing fees to consider. When you outsource payroll, cash flow management is no longer in your hands.

Many payroll providers require you to pre-fund a payroll tax account. This means that, well in advance of when your payroll taxes are due, you give your payroll provider the funds you will use to pay your payroll taxes, and the provider holds those funds for you and makes the tax payment when the time comes. During this time, you no longer have control over your cash flow, nor do you have control over how and when your payroll taxes are paid.

Inhouse Payroll

  • Control of cash flow
  • Alerted when payment is due
  • Your business earns interest on cash being held

Outsource Payroll

  • Lost control of cash flow
  • No worry about deadlines, since money is being held
  • Lose interest on cash flow

Float is common for insourced and outsourced payroll providers. Still, we wanted to include it here because it can be an important factor in how a company manages its funds, so it should be considered when looking for a payroll platform. Greenshades, for example, is an insourced provider that does not require pre-funding of payroll tax accounts, so our customers control their money from start to finish.

What is the best solution for your business?

Clearly, there is no “one size fits all” payroll solution. What works best for your business may differ from what works for another. It’s important to understand your business needs and weigh both the insource and outsource payroll options.

At Greenshades, we offer an insourced payroll platform that’s flexible, cloud-based, accessible from anywhere, and unified to make your life easier, with no pre-funded payroll tax accounts. Our payroll wizard makes running payroll a breeze by automating complex calculations, upholding compliance regulations, deducting the proper withholdings, and running a post-pay run checklist before populating pay run results to the GL.

When you’re ready to bring payroll in-house, email us atsales@greenshades.com to set up a demo!

 

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