Insourcing vs Outsourcing Payroll: Which is Better?

April 7, 2021
By Greenshades Software

Insourcing vs. outsourcing. It’s a tightrope that most businesses must walk in figuring out how to maximize resources and minimize costs. Would a particular process be done better or more efficiently by an outside firm? Do you have the staff or skills to tackle this part of running your business? Which options is the most cost effective?

A common topic of the insource/outsource debate is payroll. Payroll is vital to your business, so figuring out how to run it can be a stressful thing. Does your team have the time to learn a new software platform? Can an outside payroll provider be trusted with something so important? You might go back and forth with yourself many times before deciding, but Greenshades is here to help. Read on for a comparison of insourced and outsourced payroll so that you can get a better idea of what would work best for your company’s unique needs.

Staffing: With insourced payroll, your own staff handles payroll for your employees. The difficulty of setting this up can vary depending on how steep the learning curve is for the payroll software you choose, but this can also be a less expensive option since your staff are already on hand. With outsourcing, none of your workers deal with the payroll process, which can be good for extremely small teams (fewer than 10 people) and for those who don’t want the liability of handling payroll themselves.

Control of Process: Insourced payroll means the process is tailored to your company’s needs. You have control over the software, control over your money, and control over when tax filings and payment remittances happen. In short, everything is in your hands, from start to finish. With the outsourced option, you don’t have control over the software, which can mean it takes longer to correct mistakes when they happen since you need to notify the third-party provider. You also have reduced control over filing schedules and money, as the outsourced payroll provider would need to handle those.

Data Access: With insourced payroll, you have instant access to and control over your company’s data, including employee and business information. You also have control over the security measures in place to protect that data. With outsourced payroll, it can be difficult to access your data quickly, and you have less control over security. The risk of data breaches can increase.

Cash Flow Management: When you keep payroll in-house, you keep your money for the entire process, as well. The only time money leaves your accounts is when you pay receiving agencies directly. When you outsource payroll, you have to pay all liabilities at the time of each payroll run, including all taxes, deductions, benefits, and withholdings. Of course, you also have to pay the outsourcing fees. Your cash flow management is no longer in your hands when you outsource payroll.

Cost and Implementation: When you use insourced payroll, you must purchase the software you’ll be using, so there are upfront fees for which you can budget. Costs vary widely depending on how comprehensive the software is. Implementation also depends on what platform you get; some low-cost options don’t have all the features or support you need, whereas some of the pricier picks have far more bells and whistles than your business can use. With outsourced payroll, there can be a cost savings if the expense is less than paying staff to run payroll, but there can also be additional or hidden fees to consider.

Float vs no-float: Many payroll providers require you to pre-fund a payroll tax account. This means that, well in advance of when your payroll taxes are due, you give your payroll provider the funds that you will be using to pay your payroll taxes, and the provider holds those funds for you and makes the tax payment when the time comes. With a pre-funded payroll tax account, you no long have control over your cash flow, nor do you have control over how and when your payroll taxes are paid. Float is common for both insourced and outsourced payroll providers, but we wanted to include it here because it can be an important factor in how a company manages its funds, so it should be considered when looking for a payroll platform. Greenshades, for example, does not require pre-funding of payroll tax accounts, so our customers control their money from start to finish.

Clearly, there is no “one size fits all” payroll solution. What works best for your business may be very different from what works for another. It’s important to weigh all the options and research what’s out there. At Greenshades, we offer an insourced payroll platform that’s flexible, cloud-based, accessible from anywhere, and unified to make your life easier, with no pre-funded payroll tax accounts. We offer employee self-service, a streamlined interface, and top-tier support so that you have help anytime you need it, every step of the way. When you’re ready to bring payroll in-house, email us at sales@greenshades.com to set up a demo!