But small to mid-size businesses may benefit from outsourcing payroll as well; after all, regulations around payroll often change, and staying up to date on requirements might present a significant challenge. Professional payroll providers are obligated to track changes in rules, regulations, and tax rates for all geographic locations, and may prove to be a wise investment for business owners of all stripes. The terms “payroll service provider” and “payroll services” are often used to apply to either type of organization. We recommend checking out our 2023 guides for the best cheap payroll services, best payroll services for small businesses and best PEO services.

They typically include a cloud-based portal for both employers and employees. Employers—or your accountant, bookkeeper or HR employee—set up benefits and salaries for employees and, on some platforms, contractors. It also includes managing information relevant to the tax process such as health insurance and workers’ compensation claims. Once a business has hired its first employee, payroll responsibilities will continue every pay period as long as the business is in operation. The complexities of payroll processing may require a considerable time commitment on a daily and weekly basis — time you can’t make up elsewhere. Typically, outsourcing payroll services costs less than creating an in-house payroll department.

• Making the move to all-in-one, self-service systems promotes transparency and provides greater control over interactions with employees and data.
• Processing payroll manually involves using Microsoft Excel or other solutions to calculate the tax owed and how much to withhold from employees.
• Payroll providers can also handle payroll taxes and ensure you comply with local tax regulations, regardless of where employees are from.
• Our 2023 guide takes you through the ins and outs of how payroll outsourcing works and how your company can best evaluate a possible outsourcing strategy.
• Now, with the help of automation, a payroll department can be only a handful of workers and an investment in cloud computing.

If no abnormalities exist, payroll runs automatically – all without the need to log in or perform any manual approval tasks. Learning to manage payroll on your own requires paying attention to the legal and tax requirements involved. We’ll break down the process and important considerations to keep in mind.

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The final major component of the process is for outsourced end-of-year tax duties. This includes both submitting documentation to tax authorities—which the provider has maintained throughout activities—and remitting the tax dollars themselves. From the employer’s end, you’ll need to ensure that accurate employee information and hours worked are submitted. Prior to processing, you’ll also have an opportunity to review your payroll expense for the pay period and see reports that give you insight and visibility into your labor spend.

• Multiply the number of hours worked by the hourly wage you pay them.
• The thing is, it can be quite time-consuming to not only learn about these but to stay updated on them all.
• If you choose this option, ensure your contract with the accountant is clear to avoid potential employee misclassification issues.

Finding a high-quality outsourcing solution can make payroll management simpler and decrease the chance of mistakes. Making the move to all-in-one, self-service systems promotes transparency and provides greater control over interactions with employees and data. Cloud-based human capital management (HCM) systems that include payroll applications are becoming the new norm. Popular examples include Workday, Oracle Cloud, UKG and Ceridian Dayforce.

Take the time to make sure a provider is both trustworthy and experienced to minimize these inherent risks of outsourcing. Finding a trustworthy third-party provider goes a long way, but a company can’t just pass off any payroll mistakes that arise as the fault of its provider and move on. At the end of the day, the company is still responsible for properly compensating its employees, and problems created or left unresolved by the provider will continue to cost time and money until they’re addressed.

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PEOs are suitable to businesses of all sizes as they have the flexibility and expertise to handle the different legal jurisdictions and tax laws. Payroll outsourcing is the use of an external provider to handle the administration of your company’s payroll. Rather than an in-house payroll or HR professional, team manager, or small business owner handling payroll themselves, a third-party company takes care of the logistics. Companies choose to outsource payroll to save time and money, and to prevent payroll errors that could have serious consequences. Many online payroll services include features that help you administer benefits in the same platform, as well as integrations for accounting software.

Outsourcing Payroll: How It Works, Pros & Cons, & Costs

It encompasses a variety of tasks, not all of which are necessarily carried out by the same entity. The process begins with the integration of employees into a payroll system and extends through bank reconciliation services end-of-year tax responsibilities. When you outsource payroll for your organization, professionally trained experts will partner with you to handle part of the payroll process on your behalf.

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Payroll service providers only handle making payments to your employees. Some mistakenly believe outsourcing payroll services include HR services that help you hire new people, but HR and payroll outsourcing are different. Human resources can be outsourced to a separate service, and while some companies offer both (like Deel), a payroll company only handles payroll.

For instance, run a mock payroll for an employee who has a more complex situation. Then, whenever you’re asked to approve payroll, check how the vendor processed the employee in question. Different figures doesn’t automatically mean they’re wrong; you just need to determine who’s right. This doesn’t mean you need to see every piece of the process, but you should never be cut out of it entirely.

Statista estimates there are currently around 57.3 million gig economy workers in the United States alone. The American workforce is placing increasing value on flexibility and work-life balance—two of the main benefits of gig work. It’s not hard to see why 77% of gig workers report satisfaction with their current employment. As the number of freelance workers continues to rise, payroll software will need to adapt to meet more non-conventional needs.

Since you’ve established your needs and budget in the first stage, you can use this stage to vet out some candidates. It’s vital to complete tax-related tasks accurately and make payments on time, whether to the state or your employees. That’s why the first thing you should consider when hiring a payroll outsourcing provider is establishing trust. Payroll providers can also handle payroll taxes and ensure you comply with local tax regulations, regardless of where employees are from. You may need to supply specific tax forms and other necessary information about workers, like their Social Security numbers or Tax Identification Numbers (TIN).

How do you set up payroll?

A basic payroll solution helps you pay employees and, on some platforms, contractors. Use it to facilitate direct deposit as well as to manage payroll checks, taxes and reporting. Finally, the client shares all relevant information the provider needs to complete the payroll functions it will assume. Reduce risk and save time by relying on a partner to help manage your tax fulfillment needs, including  compliance, filing, and administration. Ceridian’s payroll outsourcing experts provide integrated garnishment administration and in-house tax services under a single contract.