9 Pros and Cons of Outsourcing Payroll for Your Business in 2021



Senior editor

Parul Saxena

Chief editor

Last updated: July 8, 2021


HRMantra : No. 1 In Payroll Software

Payroll is a crucial aspect of your business, just like sales and marketing. It not only affects the financial stability of your organization but also the team spirit of your employees. In this post, we will shed light on the pros and cons of outsourcing payroll for your business in 2020. But before highlighting the pros and cons of outsourcing payroll for your business, let’s first understand what payroll is.

Looking for Payroll Software? Check out SoftwareSuggest’s list of the best payroll software solutions.

Payroll processing involves the calculation of gross salary and net pay after adjusting taxes and other deductions. It also involves the deposition of dues such as PF, TDS, etc. In simple words, it implies the total amount of money an employer pays to employees.

Why do Business Owners Prefer Payroll Outsourcing Services?

In-house payroll management can be an expensive and time-consuming task that you may not be able to afford on your own. Moreover, the slightest payroll mistake may damage the reputation of your company and get you into legal trouble.

That’s why startups and small businesses prefer outsourcing their payroll processing so that they can gain efficiency and concentrate on the other important aspects of their business.

Outsourcing to a specialist payroll company also helps you keep accurate reports and stay on top of regulations. However, before outsourcing the responsibility of payroll administration to a third-party, you need to evaluate the advantages and drawbacks of the same.

Also, Read: What to Consider When Choosing Your Payroll Software?

9 Pros and Cons of Outsourcing Payroll

Though small as well as large business owners prefer outsourcing payroll services for shedding their payroll burden, it also poses certain serious risks to the business. Therefore, you must keep in mind the pros and cons of outsourcing payroll to determine if outsourcing is right for your company. So without further ado, let’s delve deeper into the pros and cons of outsourcing payroll.


  1. Saves Time

In-house payroll administration requires you to handle extensive volumes of data that differ from employee to employee. Calculating deductions and net pay consume a lot of time and call for extreme cautiousness to ensure 100% accuracy.

Consequently, you fail to pay full time and attention to the core business activities to grow your business. That’s where outsourcing payroll comes into play.

Once you outsource payroll to a specialist payroll company, you get adequate time to focus on marketing strategies to grow your business and improve your company’s workflow efficiencies.

2. Calculates Taxes Precisely

Calculating payroll taxes is a daunting task; therefore, small business owners prefer outsourcing this task to a third-party provider for managing appropriate taxing. A payroll service provider not only calculates taxes accurately but also makes sure that you pay your taxes on time.

3. Eschew Penalties

If you file your taxes late, you are liable to pay the fines for the same. When you outsource payroll processing, the payroll service provider ensures your business does not get penalized for the late filing of tax.

4. Reduces Overhead Expenses

Hiring an efficient payroll service provider helps you reduce the direct costs of payroll processing. For example, in-house payroll processing can be an expensive affair as it requires you to hire full-time bookkeepers and provide them with a proper workspace, along with the required tools and technology for performing payroll-related tasks.

On the other hand, when you outsource payroll processing, you can save a significant amount of money, as the costs of hiring a third-party vendor are very predictable.

5. Gives You Peace of Mind

Efficient payroll service providers keep themselves abreast of the complexities of taxes, human resources, and government compliance. Thus, they are the best people to take care of your payroll management process. If you want to save yourself a headache, you should consider outsourcing your payroll right away.

Once you outsource your payroll, you know your payroll activities will be managed by professionals that are adept at payroll processing.

A payroll service provider not only ensures you are paying your taxes but also makes sure that your employees are getting their salaries on time, thus, saving you a lot of hassle and giving you greater peace of mind.

So these are the advantages of outsourcing payroll services. By outsourcing payroll processing, you can leverage the skills and expertise that was previously available only to big corporations.

Nevertheless, payroll outsourcing also has its pitfalls. If you are looking to outsource your payroll, you should keep in mind the drawbacks of payroll outsourcing as well.

Also, Read: Global Payroll Outsourcing – When is it Right for You?

Some of the biggest potential drawbacks of  payroll outsourcing are cited below: 


6. Hiring a Substandard Service Provider

Hiring the wrong payroll service provider can prove disastrous for your business as an outsourced payroll vendor that has never handled the distinctive facets of an organization’s payroll may end up committing an error into the payroll.

7. Lack of Control Over Your Data

When you outsource a payroll service provider, you agree to abide by their terms and conditions of storing your data. Consequently, you need to depend on the vendor for the security of your sensitive employee data. At the same time, your employee data might not be accessible to you as it is stored in the payroll vendor’s server.

8. Delayed Response

In case a payroll mistake crops up, the payroll service provider may fail to respond immediately, and this may end up damaging your company’s reputation in the market.

9. Additional Expenses

A lot of payroll service providers offer their payroll packages with additional unwanted services and lure businesses to subscribe to them. Consequently, you end up paying for services that you do not need. Moreover, not every service provider customizes its services and rates as per the size of your business. Therefore, make sure you do adequate research and pick a payroll package that suits your budget and meets all your requirements.

Bottom Line

So these are some of the pros and cons of outsourcing payroll for your business this year. If you want to stay compliant with employment laws and regulations, it is advisable to outsource your payroll processing.

That said, before hiring a vendor to handle your payroll-related activities, make sure you consider the pros and cons of outsourcing payroll for your business so that you can make a sensible decision.

Chanchal Soni is a Growth Hacker and CRO Specialist at Appitsimple. She has experience in digital marketing, social media, content strategy, and marketing communications. Lover of huskies, the ocean & Boston sports.

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