Will processing payroll in-house save you money? A recent PricewaterhouseCoopers study investigated whether it is more cost-effective for small and mid-sized companies to keep processing their own payroll or to outsource the job. The majority of companies in the study assumed that outsourcing their payroll processes would be more expensive; however, the opposite turned out to be true.
Things to consider when outsourcing payroll
When evaluating the costs of different ways to do payroll, there are many expenses to take into consideration. Several of these are expected by those who are making the outsourcing decision:
* Cost of installing and running a system (to record hours and/or
process the payroll)
* Salary and benefits for the people doing the payroll
* System maintenance costs
* Outsourcing costs
There are many other expenses, however, that people are less likely to think about:
* System upgrade costs
* Labor costs for time wasted on distributing paychecks, answering employee questions about payroll and benefits, time spent on processing hours and approving payroll
* Cost of correcting human or technological errors which may include extra labor, non-compliance penalties or even lawsuits
Recommendations for outsourcing payroll
1. According to the study, the best thing organizations can do to reduce payroll costs is to outsource. The companies who outsourced their payroll spent on average 18 percent less than companies who process payroll themselves.
2. An additional suggestion to reduce expenses was to outsource other functions that complement the payroll process, like time and attendance, health and welfare benefits and workforce administration. The most cost-effective result was using one provider to cover all outsourcing needs.
The bottom line
Most companies were surprised that outsourcing was found to be less expensive; however, the cost of installing and maintaining a system in-house coupled with the direct and indirect labor costs ended up being pricier than paying a provider to process their payroll. Payroll companies can help guarantee that payroll is done correctly to help avoid fines and excess labor costs.