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Outsourcing Payroll: Tips for Choosing a Provider


Outsourcing payroll is an option being adopted by more and more small businesses these days. Why? A quick look at the benefits involved should give you a good idea:

Time Saved

Processing payroll for employees, by its very nature, can be a time-intensive activity. Outsourcing this important (but non-revenue-generating) function enables you to focus on key business operations.

Costs Saved

Turning over payroll functions to a skilled outsourced provider can assist with cutting costs incurred through typical payroll processing errors. It's estimated that, due to discrepancies between an employee's time and the accuracy of his or her time record, businesses overpay workers by roughly four percent.

Greater Security

A reputable outsourced payroll provider can help provide secure systems for handling delicate employee information (names, addresses, Social Security numbers, bank account numbers, etc.). Security technology includes redundant backup systems, numerous server locations and state-of-the-art data protection software.

Dependable Regulatory Compliance

Most small business owners find it challenging to stay current on payroll tax laws, and do not wish to incur the sizable penalties involved when payroll tax compliance errors occur. Business owners must stay compliant, but a good payroll provider is committed to helping their clients maintain compliance with payroll-related laws and regulations.

So what's the best way to proceed when outsourcing payroll? Here are some tips:

Explore the Services Offered

The best providers can offer your business a wide range of payroll-related services and assistance. In addition to knowledgeable tax compliance services, these may include:

  • Determining individual employee payroll and tax calculations
  • Print and delivery of checks
  • Detailed management reports
  • Automatic check signatures
  • Direct deposit of employee’s paychecks
  • Integrated HR software systems that monitor and compile benefits-related data

Investigate What the Payroll Provider Can Do

It's critically important to explore the claims of any payroll provider in depth. While doing your due diligence, look closely at the company's professional qualifications (number of years in business, experience within your specific industry, licensing) as well as its capacity to re-run payroll should a mistake occur. Ask for references from other business owners who have used this provider, and see if these businesses are satisfied with that provider's level of responsiveness and accuracy.

Focus on Customer Service

You can safely assume that there will be a need for ongoing communications with the outsource provider you choose. That's why you need to ensure that this provider excels at personalized customer service. Make sure that you or others in your company don't have to contend solely with an automated call center should assistance be required. The provider should offer a single point of contact and/or a skilled, service-oriented sales representative during business hours who can knowledgeably answer any and all inquiries.

Evaluate the Provider's Technology

At the most fundamental level, a qualified payroll provider should offer easy-to-use technology that you and your employees can access anytime of the day or night. This technology should be mobile-ready and also accessible by tablet or other portable devices. It's also worth asking if the provider plans to further invest in new technology and is committed to scaling upwards as your company's needs grow.

Determine the Pricing Structure

When it comes to the prospective outsource provider's fees and charges, perhaps the most important consideration is whether a set pricing structure is available. Ask about possible supplemental charges if you add new employees, or fees involved with monthly processing or switching employees to direct deposit. Also determine if pricing changes are likely in the near future. A reputable payroll provider should have no problem offering transparent pricing.

The case for outsourcing payroll is fairly compelling, particularly if your resources are limited and you wish to devote as much time and energy as possible to strategizing future growth. But taking the time to compare what various payroll providers offer may also pay off in the long run.


This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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