Outsourced or Insourced Payroll: Which is Better for Your Organization?

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As businesses in a competitive marketplace seek to meet the competition and propel their own growth, they are always looking for ways to maximize resources and minimize costs. Given the staff and skills you have in-house, when does it make sense to outsource certain processes or operations? What are the pros and cons of outsourced vs. insourced payroll?

This question of insourcing vs. outsourcing comes up often in decisions about payroll processing. Payroll constitutes a significant portion of an organization's expenditure, so it's essential to get it right.

There are a lot of factors to consider before you make the insourcing/outsourcing decision. Our team at Greenshades is here to help you make sense of the issues involved so you can decide what will work best for your company.


With insourced payroll, your in-house employees will handle all the payroll processing for your business. Depending on your team's depth of knowledge and experience, the difficulty of setting up a payroll system will vary. The plus side is that your staff are already on hand, so tasking them with this responsibility will save you the cost of hiring outsiders to do the job. On the other hand, if your office team is very small, e.g., fewer than ten employees, they may not have the skills or the time to handle payroll in-house. You'd have to consider how steep the learning curve would be for the payroll software you select.

Control of process:

You'll have more control over the whole payroll process if you keep it in-house. Insourced payroll can be tailored to your company's specific requirements. You'll have control over the software and your money. And you'll be responsible for tax filing and payment remittances. The entire process will be in your hands.  If you choose to outsource, you have no control over the software used or how long it will take to identify and remediate any mistakes. You may have reduced control over filing schedules because the payroll provider sees to that. Regular communication between your staff and the outsourced provider will be necessary.

Data access:

With in-house payroll, you have immediate access to your organization's data, including employee and business information. You also control whatever security you set in place to protect your data. The risk of data breaches increases with outsourced payroll processing. You have less proprietary control over data security.

Cash flow management:

Insourced payroll allows you control over your cash flow during the entire process.  Money exits your accounts only when you make direct payments. With outsourced payroll, you must pay all liabilities at the time of each payroll run, including all taxes, deductions, benefits, and withholdings. Additionally, you also have to pay the outsourcing fees. Your cash flow management is no longer in your hands when you outsource payroll.

Costs and Implementation:

When you use insourced payroll, you must purchase the software you'll be using. There will be upfront fees, but you will know what they are, and you can budget for them.

Costs vary widely depending on how comprehensive the software is. Implementation costs depend on the platform you choose. Some solutions with lower prices may not have all the features or support you need, whereas some of the higher-priced choices may have more bells and whistles than your business can use. With outsourced payroll, you can save on software costs, but you'll be paying for the services provided.

Float vs. no-float:

Many payroll providers require you to pre-fund a payroll tax account. Prefunding means that, well in advance of your payroll tax due date, you transfer the money to your payroll provider to hold until it is time for them to pay the taxes.  This pre-funded payroll tax model means that you do not control your cash flow or when your payroll taxes are paid. Float is typical for both insourced and outsourced payroll providers, but we mention it here because it can be a factor in how a company manages its funds. You should at least consider it when looking for a payroll platform. Greenshades, for example, does not require pre-funding of payroll tax accounts, so our customers control their money from start to finish.

Clearly, there is no "one size fits all" payroll solution. It is essential to find out what will work best for your business.  Our consultants at Greenshades can help you weigh all the 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. We offer employee self-service, a streamlined interface, and top-tier support so that you have help anytime you need it, every step of the way. If you'd like to know more about insourcing vs. outsourcing payroll, contact our experts at Greenshades.

By Greenshades Software, www.greenshades.com





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