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Outsourcing Payroll: What are the Pros and Cons?

Scout Young's Profile

outsourcing payroll pros & cons


Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

Con: cost or perceived cost

Pro: depending on whether the outsourced company is just doing payroll or is handling the administrative aspects of HR many. HR is becoming more and more complicated, and finding an error in just one small aspect can have tremendous repercussions, both from a federal/state administrative cost as well as a legal cost.

Richard Tung
Title: CFO
Company: Schnadig International Corp
(CFO, Schnadig International Corp) |

HR scope covers so much, from company image build-up, Corporate Marketing, Recruitment process, Benefit plans, Payroll process, Employee Relationship (ER), Labor Law compliance, Income Tax Law compliance ... and many others; the Pro & Con depends on which part you need and which part you want to outsource; of course, employee numbers is another key factor of HR outsourcing as well;

For start-up company with 20 or less employees, you will be benefit a lot from HR outsourcing because you don't have budget for a qualified HR personnel, who needs to know all HR scope; a qualified HR Administrator with 10 year experiences costs $75,000 and above;

Basically, HR outsource provider will handle payroll and benefit (including worker's Comp) for the company, and they also provide legal / compliance services, Employee training programs, (with additional charges) ... even retirement plan that you can pick some key areas needed, not the whole package;

General speaking, those HR outsource providers are companies with many employees, (ADP Total Source has 200,000+ employees, co-employees inclusive) that they request all co-employers follow its legal aspects, which may not fit in with a small company that is a Con for you

There are many companies provide HR outsourcing services, however, some of them offer part of HR scope and you need to do partial HR work, this may costs more spending on HR eventually;

For company over 200 employees, HR outsource may not cost effective, however, for a company with 2,000 employees in different locations, Recruitment outsourcing, Payroll outsourcing ... may be a good approach, depends

Topic Expert
Randy Miller
Title: Partner
Company: CFO Edge
(Partner, CFO Edge) |

There is a huge difference between outsourcing Payroll and outsourcing HR. I am a big proponent of outsourcing payroll for any company under 500 people, especially if you have multi-state payroll.

Outsourcing Payroll:
Cons: Cost. (And even this is questionable. You still need someone in house to gather and transmit payroll, but adding processing and tax reporting can increase that position from a part-time duty to a full-time position rapidly.)
Control - if you outsource, you are one of thousands of clients for a payroll company. If you don't find the right relationship, you can feel like you don't matter to them.

Pros: Efficiency - Payroll companies have their procedures designed to process what you provide quickly and get it to you or your employees on time;
Expertise - They know the labor laws and the tax laws;
Support - You have someone you can ask about unique situations;
Tax Reporting - Payroll tax reporting can be very complex; you can have Federal, State, and Local (both county and city) tax rates and reporting. The complexity grows exponentially if you have multi-state operations. Keeping up with all the reporting and the changes can quickly become a full-time nightmare. An outside service removes that burden and a good service will also help you with disputes and problems (and will be responsible for paying if they made the mistake).

Payroll processing and reporting can very quickly become a huge time-suck and headache. Outsourcing minimizes those issues and lets you focus on the business.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

Pro's: Less pain around keeping up to date on tax issues nationwide.
An expert to go to when issues arise
Forces discipline around getting payroll done on a regular basis

Con: Could seem to cost more in some cases, but the cost avoidance is something you can't measure.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

I am a proponent of outsourcing if it can be done better, faster and cheaper than building the function within your company. If you are looking to just have someone complete the payroll piece, please review my blog post - Vendor/Contract Management, a Controlled Risk posted 03.09.2012 on Proformative. But if you are looking to hire a PEO, please review my blog post - A PEO is not a “Set it and Forget it Process” posted 06.30.2012 on Proformative.

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