One of the most common questions we get is: “is it time for us to outsource payroll?” Sometimes the answer is a clear yes or no, and sometimes the answer is “it depends.” Today we’ll go through the key reasons why payroll should be outsourced, and what signals mean that the time for you to outsource has come.
Should I Outsource Payroll?
One reason that businesses outsource payroll is that they have reached the capacity of their internal team and tools to handle payroll for their growing workforce. Startups and small businesses often begin handling payroll with the simplest tools, managed by a single payroll administrator, often doubling as their HR manager or even office administrator. As your team grows and your payroll needs become more complex, those tools get stretched.
Rather than jury rig complexity into a system that wasn’t designed for it, it’s better to move forward with a right sized solution. For many businesses, that means outsourcing the payroll function.
Just as a growing workforce can quickly outpace your payroll tools, it can also outgrow the expertise of your payroll team. As your business expands and you hire employees in multiple provinces, engage contractors for short projects, and bring in summer interns, your payroll becomes complex. And as your business becomes more successful, and you add employee perks like benefits, retirement savings and bonuses, it becomes more complex still. Your team and tools need to account for various tax rules and employment standards. They need to understand the differences between full time, part time and contract workers and apply the rules pertaining to them correctly.
Outsourcing payroll allows businesses to access expertise in a variety of areas that a small payroll teams can’t always offer.
The last common reason that businesses outsource payroll is cost. Cost savings can be found by both small and large teams by outsourcing payroll, but the solutions they seek are different. Small businesses typically need a simpler, more streamlined payroll process, whereas large businesses have more employee classes, more complex benefit needs and often multiple levels of approvals. Small businesses often seek a managed payroll solution, where the whole payroll function is outsourced to experts who deliver self-serve tools. Larger businesses often look for an integrated model, where external payroll processors work closely with internal HR and team leads to ensure accuracy and compliance.
When Should I Outsource Payroll?
Businesses choose to outsource payroll at all stages of their growth, but one signal that makes it clear that it is time is a proliferation of errors. Small payroll errors are easy to correct but they add up quickly. The more errors your team is making, the harder they are to catch, and the more unhappy your employees will be. Payroll errors can sour positive employer-employee relationships, and once they are damaged in this way, they’re difficult to repair. Serious payroll errors are even worse for your business. Fines for unpaid taxes and noncompliance cost businesses millions every year. Lawsuits pertaining to improper severance can be even more expensive.
If payroll errors are starting to pile up at your business, it’s time to outsource.
Another signal that it may be time to outsource payroll is sudden workforce or business growth. While these moments are tremendous opportunities, they also present risk if internal tools and processes cannot keep pace.
If your team is growing rapidly and you’re worried that you cannot continue to deliver a great employee experience, it’s time to consider payroll outsourcing.