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Why is Outsourcing of Payroll Services to Third Parties so Beneficial?

As per a Deloitte survey, around 25% of firms across America, EMEA, and APAC outsourced their payroll management function to third-party vendors.

Payroll management includes basket of services like:

  1. Integrating time-sheets into payable salaries and tax liabilities.
  2. Managing tax-deducted at source, tax filings, and deductions.
  3. Providing management reports.
  4. Managing wage garnishments and other ad hoc requirements.
  5. Processing payment discrepancies.


If one-fourth of businesses are hiring third parties for payroll services, there has to be a specific set of advantages gained by companies that choose to outsource. Here are some benefits that make business operators choose third-party payroll systems over in-house management:

Saves Time:

Handling payroll function is no cake-walk. Payroll department has to look into several intricate and minutest of details such as garnishments, new hires, terminations and benefit deductions to name a few. Plus, any changes in federal and state regulations just makes it even more complicated. Managing payroll internally is quite a taxing task consuming precious labour hours in preparing W2s. Outsourcing payroll accounting to a professional firm unburdens you from worrying about these time-consuming tasks requiring 100% precision. Moreover, HR department’s time can be utilized for core functions which are strategically more important for the business. Strategic resource management is one of the reasons, organizations prefer to outsource payroll accounting, which gives them a competitive edge as well. Simply because payroll is not a one-time thing, one payroll period followed by another and so on.



Although hiring & retaining talent is entirely different from payroll processing. However, as soon as the hiring capacity goes up, the business will have to pay more for the increased capacity even in terms of resources necessary to make the changes in the payroll system. Payroll management service-providers already have the necessary investments made in the systems necessary to unlock the cost-efficiencies. Plus, there is hardly any differential cost of hiring more people.


Better Compliance: 

While cost-efficiencies help the business maintain its profitability, compliance can be a major operational hurdle. It can become a major headache for a business to frequently change its payroll systems with the evolving labour laws. If a business operates in different countries, the problem grows by another fold. Having a payroll-management partner can help the business streamline its entire payroll compliance function. Since payroll-management services providers are in the business of managing payrolls, they can afford to have dedicated resources that provide it with the capacity to comply with the changing laws – this way, the business can take care of its compliance and cost-effectiveness.


Avoiding Penalties:

Each year numerous small and big businesses end up paying heavy IRS penalties. According to the Internal Revenue Service department, on an average the penalty amount paid because of incorrect or delayed filings is $845. Payroll mistakes not only upsets the employees, filings with omissions or incorrect details also raises a red flag. These mistakes lead to undesirable events such as heavy penalties and even audits.
Besides, it’s almost impossible for a small enterprise to be on the ball with the latest changes in federal and state tax regulations. Since professional providers have to stay abreast with all federal and state regulations all the time, they can manage calculations and filings with utmost ease at a very nominal cost which if managed otherwise, would have costed several hours and penalties.


Standardizes Payroll: 

The last thing a high-performing employee would want is a delay in her payments for a month. Even when employees are not dependent on their monthly salaries to pay their bills, they have significant expenses like installments and rent to be taken care of. If a company manages its payrolls and faces a delay in payments, the employees would end up taking the heat. Payroll management companies have established relationships with banks and financial intermediaries. Since the volume of transactions they make is substantial, the entire transaction-flow is standardized. This ensures that a business, no matter how big or small, gets the benefits of standardized payroll processes and its employees get their bank accounts credited consistently month-on-month.


Lesser Lead Time: 

Apart from consistency of payment for the employees and the cost-effectiveness for the businesses, the lead time is a significant differentiator between in-house and third-party payroll management services. Since the financial intermediaries, technological platforms maintained by a payroll management partner are more standardized than that of a smaller business, the lead times for disbursements can come down dramatically. This is primarily because of the economies of scale – a business can only invest a small portion in such systems; a payroll management vendor makes critical investments in such systems since that is the entire business. 


Thus, Outsourcing payroll management gives a business the resource-efficiency that can translate into additional profits while ensuring compliance, operational consistency, and unhinged access to professional-grade services irrespective of the business’ scale. Moreover, the employees get reliable remuneration facility, quick resolution in issues & discrepancies, and standardized services for taxes & benefits management that help them plan their finances with reasonable accuracy. In a nutshell, it’s a win-win for both the business and the employees.


Published By : Aanchal Garg on  19 Apr 2022 03:21:26pm


Established in 2007, Renuka Outsourcing is an ISO 9001:2015 certified company providing complete outsourcing solutions in accounting, payroll, taxation and back office services to CA, CPA and accounting firms all across the globe.

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