Businesses of any size can benefit from outsourcing almost any of their processes, from IT to payroll and beyond. Many businesses take advantage of outsourcing services. In 2018, the outsourcing industry was worth $85.6 billion, and it’s predicted to continue growing.

It seems relatively easy to outsource IT or even something like accounting and tax preparation. Outsourcing important tasks like payroll and other human resources functions is less intuitive for many business owners. How can you send these key administrative jobs over to people who aren’t involved in your business?

This guide will help you understand how payroll outsourcing operates, and how you can make it work for your business. No matter how large or small your operation is, payroll outsourcing could be the right move for you.

What Is Payroll Outsourcing?

Payroll outsourcing is almost exactly what it sounds like. Instead of handling payroll by yourself, you can send this administrative task over to a team of experts.

How does that work? Like any other business process you might choose to outsource, you will pick a provider and set up an account with them. They’ll then take the information they require and conduct payroll on your behalf.

There are a few different types of companies that will offer payroll services:

Some of these categories overlap. A EOR, for example, may also provide several of the same services an HR provider offers you.

The services you’re offered could also vary based on the complexity of your payroll needs. For example, you may also ask your payroll provider to assist with benefits administration or workers’ compensation insurance. Since both of these tasks can involve payments, it might make sense to include them as part of a payroll service agreement.

How Does Payroll Outsourcing Work?

Most payroll services will help you with the basics of payroll. This includes:

- Calculating wages owed
- Determining vacation pay
- Calculating overtime pay
- Determining holiday pay
- Deducting payroll taxes and other fees

As you can see, there’s a bit more to keep track of than just how much you’re going to pay an employee! You might need to address holiday pay and vacation pay. Depending on your jurisdiction, some employees may be entitled to different rates of overtime pay.

Payroll taxes and deductions are another complex part of the payroll process. The payroll provider can help you calculate taxes and other fees you’re obligated to collect. They’ll then help you prepare reports and remit these amounts to the government.

Given this, it can also make sense to have your payroll provider involved in end-of-year tax preparation. This is especially the case if you work with an EOR.

Benefits administration, reimbursements, stipends, and other forms of payment can also be handled by a payroll provider.

Step-by-Step Payroll

So, how does a payroll provider do your payroll?

The first step is setting up an account for conducting payroll. You’ll supply the funds to this account, which the provider will use to disburse payments. This will help you share the information the payroll provider needs to administer payroll on your behalf.

You may want to connect time-tracking software, benefits administration software, and any payroll software you’re already using to your account. This helps the provider, by allowing them to easily find the data they require.

What kinds of information do you need to supply to the payroll provider? Some of the details are obvious, such as which employee you’re paying, the hours they worked, and their rate of pay. You’ll also have to send:

- Information about where the employee lives, so that the payroll provider can calculate the correct deductions for each jurisdiction

- Details about their occupation, including special provisions for wages or overtime

- Vacation pay, sick days, and other forms of time off the employee is entitled to

- Co-pays, such as employee contributions to a pension plan or benefit premiums

- Pay period start and end dates, as well as frequency

With this information in hand, your payroll provider calculates how much you need to pay your employees. They’ll then tally everything up and withdraw from your payroll account to ensure your team members are receiving their dues every payday.

What Are the Benefits of Outsourcing Payroll?

Many business owners feel that payroll is best conducted in-house. They may believe their team has the expertise they need, or they might think they’re saving money.

In many cases, running payroll in-house is more of a headache than it’s worth. Payroll errors are costly. In the United States, the average company pays around $845 in payroll penalties each year.

Payroll errors could cost you valuable team members too. Many employees think about leaving a company after just two mistakes on their paychecks.

Can you really afford to make mistakes?

Managing payroll is also a time-intensive task. Your expert team could be running up hours trying to push payroll through. The more often you run payroll, the more time they’ll spend on it. In turn, other important tasks might be neglected. You may have less time for employee training or compliance monitoring activities.

Compliance monitoring in and of itself is an enormous job. Your team may be falling behind, which can lead to mistakes. If you’re operating in more than one country, there’s a good chance your team isn’t familiar with the rules.

In short, outsourcing payroll keeps you on the right side of the law. It can also save you money. It can even help you keep your employees happy.

Signs You Need to Outsource Payroll

You might be wondering how you can tell if outsourcing payroll is what your business needs. Take a look for some of these signs:

- Payroll is late
- Your employees complain about payroll errors
- Your HR team is constantly overworked
- You’ve paid payroll penalties in the last 12 months
- You’re entering a new country
- Other important business tasks are being ignored
- You have high turnover
- You’re concerned about high labor costs

In any of these situations, outsourcing payroll could be the right move.

If you’re in the market for a new payroll partner, start your search by getting in touch with the experts. With the right advice, it’s easier to make great decisions to help your business grow.