Payroll outsourcing: Benefits and how to do it

On paper, payroll sounds like a simple task. An employee sends an invoice to accounting, payroll runs the numbers, and a direct deposit lands in the employee’s bank account. But behind the scenes, it’s a complicated and time-consuming process. Payroll services calculate wages, deduct appropriate taxes, and report earnings, ensuring compliance with rules and regulations before and after cutting a check.

Whether you manage payroll for a small team or a global workforce, outsourcing payroll lets experts take the reins. Streamlining your global payroll operations can save you money and administrative headaches. 

Here’s how to choose the right payroll automation system for your team.

Payroll outsourcing

Payroll outsourcing involves handing over the payroll process to an external service provider.  Outsourced payroll management handles salary calculations, paycheck generation, tax deductions, recordkeeping, and more.

By outsourcing routine processes, companies can allocate more time for their internal People Ops teams and focus on strategic activities, such as employee relations or policy development. The approach streamlines operations and ensures payroll specialists manage financial tasks efficiently and securely, reducing the burden on valuable internal resources. 

The benefits of payroll outsourcing services 

A payroll outsourcing company offers various benefits for your business. From reducing costs to streamlining payroll and HR operations, here are nine reasons to consider outsourcing:

1. Accuracy

Payroll errors are common. Simple miscalculations, erroneous tax deductions, and convoluted compliance issues can easily slip through the cracks.

Payroll errors don’t just negatively impact your bottom line. They can also spark employee dissatisfaction, harm your company’s reputation, and lead to regulatory audits and penalties. Payroll management companies tend to have rigorous quality control methods to run through your accounting with a fine-toothed comb. 

2. Time savings

Processing payroll is time-consuming, especially for global workforces with various types of employees. Decentralized payroll processes let HR specialists allocate more time to priority tasks, like talent development, employee engagement, and other employee benefits.  

3. Smooth onboarding

Onboarding a new hire sets the tone for their future engagement and productivity. Outsourcing payroll helps seamlessly integrate new employees into an organization’s payroll system. A stress-free transition reduces administrative burdens and assures new hires they’re joining an efficient team focused on their success and comfort. 

4. Compliance

Payroll administration does more than cut checks. It ensures the company’s compliance with local, state, and federal payroll tax laws to avoid penalties and lawsuits. Outsourced payroll companies often have a deeper understanding of complex and dynamic compliance requirements, which can alleviate the burden on your HR team.

5. Cost savings

Up-to-date payroll software, IT infrastructure, training, and regular internal auditing represent inherent costs of running payroll in-house. Often, hiring out can be significantly more affordable than building an internal payroll department.

6. Employee satisfaction

Employees want to be paid quickly and consistently so they can budget their monthly expenses. Payroll companies with automated services help pay employees on time, boosting morale and trust in leadership.

7. Company focus

Outsourcing payroll services allows organizations to redirect their internal resources toward their core business functions. By relying on outsourced payroll providers, company leadership preserves its energy for strategic initiatives, product development, sales, and customer service.

8. Security

Processing payroll requires the handling of sensitive, personal information. Reputable payroll services often invest in state-of-the-art security software and policies to safeguard companies’ sensitive employee information from data breaches. Many companies struggle to replicate these advanced security measures internally, making outsourced payroll providers the safer option for protecting employee data.

9. Data management

Payroll outsourcing can reduce errors and improve accuracy. This allows HR staff to maintain meticulous records and reliable data, streamlining processes including tax filings, performance evaluations, and healthcare benefits. Likewise, by hiring a specialist in outsourced payroll, organizations may gain access to more detailed payroll reports, which can be beneficial during budgeting and auditing.

What functions do payroll outsourcing providers offer?

Many companies turn to professional employer organizations (PEOs) to manage critical HR tasks, such as payroll, benefits administration, and tax compliance. Here are the most common outsourcing responsibilities:

• Payroll account and payment method setup
• Payment tracking
• Calculating total wages owed
• Reporting new hires to relevant state agencies
• Delivering pay via direct deposit, check, or other payment method
• Benefits administration for pensions, 401(k), and other retirement plans
• Overseeing payroll tax and employment tax compliance
• Payroll tax remittance
• Managing end-of-year tax work services

Although PEO services are often billed as all-in-one payroll solutions, collaboration with an internal accountant will enhance oversight, provide company-specific financial insights, and ensure seamless integration between the PEO and the business. 

How to choose a provider for outsourcing payroll

As an organization grows, payroll becomes more complex, especially with international teams. Outsourcing to a payroll provider is a natural—and often crucial—step. Here are five things to look for in a global payroll provider. 

Determine your requirements

Start by assessing your company’s specific payroll needs, such as the number and type of employees, frequency of pay runs, and budget. Likewise, consider the pain points of your internal payroll system and how outsourcing to a payroll specialist should help the organization. Use Oyster’s six questions about outsourcing payroll to support your brainstorming session.

Address compliance

Payroll outsourcing providers must comply with relevant tax laws, labor regulations, and data protection standards to protect your business’s interests. Verify certifications and interview potential payroll providers about how they manage compliance across different regions, especially if your company operates internationally. 

Compare payroll providers

The cost of payroll services is an important consideration. However, the cheapest option may cost you more in the future if the payroll company can’t meet all your needs. Carefully consider service offerings, customer support availability, and scalability of services in reference to your organization’s future growth goals. 

Reach out to your network for reviews

Once you narrow down the best international payroll services, seek honest feedback from colleagues and industry peers to judge how well the payroll services deliver on their promises. Reach out to your network of HR professionals and read online reviews and testimonials to gauge reliability, accuracy, and responsiveness to client needs.

Consider your technology and security needs

Your employee’s personal data is your responsibility, even if you outsource to another company. Ask each payroll provider about their technology platforms, security measures, and past security breaches. Look for companies that use robust encryption protocols for data transmission and storage, and inquire about disaster recovery plans used in emergencies. 

Maximize efficiency with outsourced payroll solutions

Delegating payroll processing to a third-party provider is a big step in your business’s growth, helping you mitigate errors and dedicate money and focus to more significant priorities. Oyster’s global payroll solution lets you compliantly pay employees and contractors in more than 180 countries around the globe. Streamline and consolidate your global payroll operations with Oyster today.