Effectively managing payroll is critical to the success of your business. For one thing, payroll mistakes can result in dissatisfied and demoralized employees, potentially depressing engagement and productivity while increasing staff turnover. For another, errors can result in costly penalties and fines levied by the Internal Revenue Service.

Unfortunately, as important as an accurate payroll is to your business, it’s also among the most difficult and time-consuming functions to handle accurately. As David McKelvey, a Tax and Business Consulting Partner with Friedman LLP, explains, “There are so many little rules for a small business owner to stay on top of.”

Increasingly, forward-leaning companies are increasing productivity—and revenues—by moving to outsourced payroll services. Sujan Patel, Cofounder of Web Profits, notes 5 major benefits of outsourcing your payroll:

1. You’ll be Better Positioned to Focus on Core Priorities

Accurately handling payroll in-house is time consuming, and accuracy is important. In 2013, for example, the Internal Revenue Service issued 6.8 million penalties totaling more than $4.5 billion to businesses for errors related to employment taxes alone, and taxes are just one of the several functions related to payroll. You also need to be accurate reporting employee classification, overtime payments, state unemployment taxes, and garnishes and levies. The more your business grows, increasing the size of your workforce, the more time consuming payroll becomes. As Karen McMullen (from The Staffing Edge) writes:

“One of the major challenges to in-house payroll processors is simply the amount of time it takes to complete and the inability to find much in the way of efficiency.”

2. You’ll Reduce Costs

Businesses which believe they’re saving money by handling payroll in-house tend to be misguided. The truth is that time is money and, as noted above, preparing payroll takes a lot of time. You can test this yourself—simply add up all the time your company spends calculating employee hours, deductions, paid time off, sick leave and taxes, plus printing, signing and distributing paychecks and generating payroll reports. Now multiply those hours by the hourly wage you pay in-house payroll preparers and compare it to the cost of outsourcing. Chances are you’ll be surprised at how much you can save by letting a third-party handle payroll for you.

3. Your Data will be More Secure

There are both internal and external threats to the security of your payroll data. Internal threats include employees who, with access to employees’ personal data, can engage in identify theft or otherwise tamper with records for personal gain. External threats are even more insidious: any security flaw opens the door to hackers who can steal your data for criminal purposes.

When you outsource payroll, your data is stored on highly-secure servers that employ state-of-the-art encryption technology and redundant backups. Matching that level of security in-house is generally too expensive for most businesses.

4. You’ll Have Assistance with Government Compliance 

Any errors created by your in-house payroll staff are subject to hefty government fines. The fact that those mistakes weren’t intentional isn’t an affirmative defense—if your business creates the errors, you’re responsible, legally and financially.

Companies whose sole focus is managing payroll have special expertise, including a thorough understanding of tax law. Unlike you or your payroll staff, they make it their business to stay on top of the continually shifting landscape of new rules and regulations. They are far more likely than your in-house staff to ensure you remain in compliance with all of those regulations.

5. You’ll Have Access to Other, Specialized Services

Many HR outsourcing, or PEO, organizations are able to offer payroll services on top of a variety of other solutions, like workers’ compensation, 401(k), health benefits and human resources support. In order to meet the specific needs of your business, organizations such as AlphaStaff allow you to pick and choose from many of these other, specialized services.


An increasing number of smart businesses from Ft. Lauderdale to Miami, San Diego, Los Angeles and San Francisco have either already outsourced their payroll services, or are actively considering doing so in the near future. No solution is right for every business, but for the vast majority, outsourcing payroll just makes sense—it can save you money, put the focus back onto what your business is all about, ensure compliance with government regulations, secure your data, and provide access to other specialized services to help you grow your business and add to the bottom line.