In-House Payroll vs Outsourced Payroll: Which Is Best for Your Business?


Payroll management isn’t always the easiest thing to do by yourself, especially if you’re running a sizable business. There are two ways you can resolve this difficulty: either by training your own in-house payroll team to take care of your payroll, or outsource them to a payroll outsourcing company. But which one should you pick for your business? If you’re looking for a breakdown on in-house vs. outsourcing pros and cons with your payroll, this article is for you.


On the surface, in-house payroll and outsourcing payroll has only one clear difference. One is managed by a team inside your company, while the other is outsourced to a company that does it for you. But aside from who’s managing your payroll, there are differences in how they go about it – and it’s these differences that you’ll need to keep in mind.

Data Security
Payroll isn’t just about paying your employee’s salaries: they also involve calculating their taxes and overtime, recording any deductions they may have, adjusting their wages when they get promoted, and making payments to any contributions that they may have. This is a lot of sensitive data, and you or your employees may not be comfortable sharing this with a third party.

In house: An in-house payroll can secure your employees’ personal information, ensuring that only allowed individuals have access to it for payroll. This can help lessen the risk of data leaks, and keeps all the information you need about your employees in one place.

Outsourced: Outsourcing your payroll management means finding a provider that maintains a secure server to store your employee data, aside from having the tools needed to conduct your payroll properly. This lightens the load on your own HR/finance department, because payroll processing becomes more complicated as your business scales up.

Data security matters much more if your company has hundreds of employees, since processing all of that data for an accurate payroll can easily overwhelm a smaller payroll management team. However, smaller companies may not have the infrastructure possible to process payrolls efficiently. If you can find a provider that can accommodate your needs while keeping your data secure, this becomes less of a concern.

Payroll Flexibility
Payrolls aren’t always regular: sometimes you may need to delay a payroll or change how you go about it to account for things like raises or cash advances from your employees. While a payroll works best as an automated process, you need to have some flexibility with your payroll to accommodate these unexpected circumstances. This also allows you the freedom to change the way you manage your payroll in response to the needs of your business.

In-house: In-house payrolls are easy to change and manage, since you have full control over how it’s distributed and can change it according to your needs. Since you handle your employee salaries in house, you don’t have to worry about integrating any changes with a third-party tool or provider, which might delay payouts and decrease employee satisfaction.
Outsourced: Outsourced payrolls can still be flexible according to the needs of your company, but you need to find a responsive provider that you can easily communicate with when you need any changes made. Because they don’t require a lot of administrative oversight, you can simply file a request for changes to your payroll management and leave them to do the rest.

Payroll flexibility matters more for certain industries that calculate payroll based on job costing and estimates, since these can drastically lower or raise the payroll of specific employees. While it’s not impossible to have payroll flexibility with an outsourced provider, it can be more difficult to make sure that they integrate smoothly with your operations.

Overall Costs
As payroll management scales with the size of your company, so does its overall cost. The bigger your company is, the more time and effort you’ll have to spend making sure that payroll is accurate – and this expense isn’t something that all companies can afford, at least at the beginning. Depending on your company growth, you’ll need to make allowances for how much of your operations budget goes to your payroll management.

In-house: Keeping your payroll in-house might be the more familiar approach but it will require more time and training to make sure that your staff can handle the demands of payroll management. This makes it important for you to either find experienced employees to fill your Payroll/Finance department, or train your employees so they won’t have any problems with doing payroll management as your company grows.
Outsourced: Outsourcing payroll removes the costs for training personnel in payroll management, as your chosen company will usually provide their own staff and tools to take over your payroll services. However, most outsourced payroll services will charge their fees depending on how many employees your company has, which can make them more costly to work with if you’re a small business.

The costs of outsourcing payroll can vary depending on your provider, which can make in-house payroll management seem like a better alternative in most cases. However, you need to be ready to scale up your payroll management alongside the growth of your business, which may occur at a pace that you can’t keep up with. In these situations, an outsourced payroll service is a cost-effective safety net to make sure your payroll runs smoothly.

Payroll outsourcing benefits your company if you don’t want to bother with the paperwork, compliance, and tax concerns that come with doing your payroll yourself. But if you want more control over your payroll and already have a trained team that can handle it for you, it may be better to keep it functioning in-house.

ClockOn is one of the premier payroll processing outsourcing companies in Australia, helping businesses manage their payrolls more effectively. We tailor our plans to the needs of your business, making outsourced payrolls more accessible in price without compromising the quality of your service.

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