Outsourcing vs. In-House Payroll: Which Option is Right for Your Business?

Outsourcing vs. In-House Payroll

Making sure employees are paid appropriately and on time is one of any business’s most important duties. But even though it may seem easy, there are many challenges and setbacks that you’ll have to overcome to finish each pay run.

You’ll have to deal with various pay adjustments from pay run to some people may change their working hours, others may take a sabbatical or family leave and not receive their regular salary, and there are also freelancers and contractors to take into account, especially about off-payroll working rules. And that’s all before you consider taxes, pension contributions, and other laws that you must abide by.

Therefore, your company/business needs a team that is well-versed in payroll procedures and what is required to maintain compliance.

In such a situation, you will be in a dilemma do you hire a team of in-house professionals or do you hire a specialized supplier to handle your payroll? Your requirements will determine the best solution for your business, although each one has advantages. Here, we go through the differences between in-house and outsourced payroll, the benefits of each, and the factors you should take into account when selecting which option is best for your business/company.


What is In-House Payroll?

When an inside department processes payroll on behalf of the company, this is known as in-house payroll. As workers, those who handle payroll internally are paid using the same payroll system that they assist in managing. Payroll clerks that work in-house are frequently employed by the finance or human resources divisions.

What is Payroll Outsourcing?

Payroll outsourcing is the process of using an outside supplier to manage the compliance and administrative aspects of payroll. Outsourced solutions’ level of complexity can range from managing simply a small portion of a business payroll, such as calculating deductions or transferring payments to employees’ accounts, to managing the full procedure.

 Outsourcing vs In-house Payroll

When your business has an inside division that manages the payroll procedure for the organization, that arrangement is known as in-house payroll. These people work for you and are compensated via the payroll system that they control. Typically, your HR or finance departments will house in-house payroll professionals. They will be responsible for gathering and verifying payroll information as well as carrying out the complete pay run computation.. With an internal payroll team, you have the power and freedom to implement any necessary adjustments and come to wiser conclusions.

When you outsource payroll, your business contracts with a payroll outsourcing vendors firm to handle all of its payroll-related tasks. The solutions these companies offer might range from end to end payroll processing, quarterly TDS filing to form 16 generation ,, ensuring compliance with employment and payroll laws, and providing the whole payroll service. A top-notch outsourced payroll solution saves you money and time while giving you the impression that the outsourcer is your in-house payroll staff. The amount of outsourced payroll help that the supplier offers you can typically be customized.

The complexity of your business or company payroll requirements and the level of experience you have on staff will determine whether outsourcing payroll is a good choice for you. Some businesses will find that making this decision will save them time and money because they won’t need to hire payroll personnel or purchase the necessary software. Additionally, you won’t have to worry about staying compliant  with change in wage legislations.

Pros and Cons of Outsourcing Payroll

Payroll outsourcing is working with a seasoned payroll service provider to manage the payroll procedure. The majority of providers of outsourced payroll service providers assist you in automating your payroll procedure, saving you the headache and time of handling it continuously. Look at the main advantages and disadvantages of outsourcing payroll.


  • Cost savings
    A majority of companies today save money overall when outsourcing payroll. When looking into budgeting, it’s important to look at all the costs involved when determining whether in-house or outsourcing payroll is cheaper.
  • Time reduction
    Businesses frequently save a tonne of time and money by using automated payroll systems. Using a payroll service is similar to hiring a second full-time employee who works nonstop, doesn’t take vacation or sick days, and always completes tasks precisely and on schedule. It’s crucial to consider who is currently handling your payroll if you handle it internally. Could there be other things they could do with their time? If so, outsourcing payroll is the greatest approach to maximize the time that your staff has available to them.
  • Streamlined integrations
    Businesses that use outsourced payroll services may manage numerous duties in one location thanks to the many practical integrations that are available. Your team can gain a lot of time over time by streamlining related tasks like payroll, accounting, HR, onboarding, benefits, and more.



  • Fewer controls on the payroll process
    The majority of the time, payroll processing will be automated when employing an outsourced payroll service. You are handing over control of the majority of the payroll process to the payroll provider, which may be convenient and time-saving for some firms. The possible drawback of this is that you might not fully comprehend how the payroll system operates. You must contact customer support and wait for a response if you have questions or need the provider to clarify something. To complete payroll, you will also need to give them access to employee and business data.
  • Paying for features you don’t need
    Another potential drawback of employing a payroll service is that each provider often only offers a small number of price options. There is typically a base-level subscription available for payroll services, as well as higher-level subscriptions with more advanced capabilities.
  • Limited to the integrations offered by the payroll service
    The majority of payroll services provide a list of integrations that are compatible with their product. For instance, the payroll service interacts with Quickbooks and Sage accounting programs. If you are familiar with these programs and integrations, this is wonderful because it can help you organize your workload. On the other hand, your team might use a different piece of software that is not included in the list of connectors the provider offers. In this situation, you would have to change to new software and deal with a learning curve.

 Benefits of In-House Payroll Processing

The management of payroll procedures will be more within your control. Your payroll team can either assist you modify the procedures you now employ or they can work with you to create a system that is more suited to your requirements. Additionally, you may quickly and simply fix any problems that arise and make any necessary adjustments right away. It can also be simpler for you to finish the payroll procedure. You only need to follow your payment procedures once your calculations have been done and included in your reports. You can rectify any difficulties and submit the right amount before the due date if you need to make any modifications, which can be done off-cycle.

You can easily view your payroll history and details if you have control over your payroll. If necessary, your qualified accountants can review these specifics and find any areas where you can cut back on payroll expenses and tax obligations. Your decision will also be heavily influenced by the size of your business. A member of the HR or finance team might be able to handle your payroll needs if you are the owner of a small or medium-sized business, for instance. Payroll processing costs are spread out over a bigger pool for firms with thousands of employees, which lowers the per-employee cost and makes the choice to hire someone inside much simpler.

Factors to consider: In-House vs. Outsourced Payroll

You’ll need to take into account several criteria when you look for choosing between outsourcing and in-house payroll for your business & before making a decision. Because payroll data contains some of your organization’s most sensitive information, like bank account information and salary, security is likely to be a high issue. Make sure your cloud provider has enough service resilience to guarantee minimal or no downtime and reliable business continuity.

Whether you outsource your payroll or not, another thing to think about is how simple it is to integrate payroll software with your other business systems. Payroll is dependent on data, much of which may come from your main HR system. Whether or not they are offered by the same vendor, choosing payroll software that interfaces with your HR software will assist to speed up your pay runs, increase their accuracy, and strengthen the process as a whole.

Your professional payroll outsourcing provider should be able to handle API connectivity integrations so that data sharing at the application level is secure and simple. Typically, time and attendance systems, timesheets and a variety of other outside organizations will supply payroll data. Solid automation of processes and calculating routines integrated into your systems is necessary for the collection of this data, its interpretation, and the application of the appropriate payments and deductions. Make sure your supplier can deliver dependable customer support as well.

Choose a company that puts money into training its customer service staff so that they can communicate and solve problems more effectively while evaluating payroll outsourcing options. Additionally, your payroll software provider should provide training on how to utilize it, especially when there are substantial changes like the end of the tax year and new laws. For instance, Paysquare which is one of the payroll outsourcing services in India and has a committed team of certified payroll specialists and account managers who can assist you in solving any issues you may have swiftly and painlessly.

At Paysquare, the payroll outsourcing specialists recognize how crucial it is for your payroll process to be as efficient and precise as possible as well as for your finance staff to be relieved of the weight of time-consuming administrative duties so they can focus on business-critical tasks. Paysquare’s outsourced payroll processing has been created specifically to assist businesses across the nation with the payroll challenges they face and to give them the peace of mind they require to know that their payment process is accurate, compliant, and effective month after month.