10 Good Reasons to Use Payroll Administration Outsourcing

Many small business owners have asked themselves: Why do I have to work so hard to get my employees paid? Managing payroll sometimes seems to be the trickiest and most grinding part of the business.

Every two weeks, there's some new twist: payroll adjustments, record keeping issues, updates to the payroll software. And every fact and figure must be correct or there could be severe consequences: claims for back pay, lawsuits from employees, fines from the IRS.

These are the pressures that can lead so many business owners toward outsourcing payroll administration to third-party providers. This article will break down payroll administration outsourcing, including how it works and why it makes sense for so many small and medium-sized businesses.

Why Should I Use Payroll Administration Outsourcing?

Outsourcing can be a strategic lifeline for small and medium-sized businesses (SMBs) looking to grow, streamline operations and stay competitive. It can be life-changing for business owners seeking balance, freedom and peace of mind.

SMBs typically seek a combination of operational efficiency, consistency, and expertise, benefits that can be challenging to achieve with in-house resources alone. Here are some of the key reasons companies turn to payroll administration outsourcing:

1. Cost efficiencies

Outsourcing payroll services can help reduce the time and resources from a dedicated payroll staff. Outsourcing can help simplify payroll processing and may lead to potential cost savings. It often proves more cost-effective than administering payroll internally, especially when considering the hidden costs of errors and compliance risks.

2. Time efficiency and productivity

Payroll outsourcing can save significant administrative time, freeing business owners and managers to focus on core business activities and growth and enhancing time management overall. It can also reduce interruptions, such as chasing down timesheets or performing payroll tasks, which allows teams to concentrate on higher-value work.

3. Compliance support and risk mitigation

Payroll service providers offer specialized expertise in pay rules and requirements across federal, state and local payroll and payroll tax laws. With their experience and enterprise-grade software, they can help process payroll, administer payroll tax filings, and year-end forms, and support businesses in navigating complex payroll concerns. In short, they can help businesses mitigate the risk of costly mistakes and penalties.

4. Enhanced consistency and reliability

Outsourcing payroll can help reduce the risk of manual errors in payroll calculations, deductions and payroll tax withholdings. This can lead to more consistent payroll data in processing payroll, which can contribute to a smoother experience and greater employee satisfaction. Outsourcing providers also offer advanced payroll software and streamlined processes to support simple, efficient payroll processing and reporting.

5. Access to expertise and advanced technology

Businesses gain access to payroll professionals and the latest technology, including cloud-based platforms, mobile access and real-time reporting. Often, these features allow for technology integration, making the experience smooth. Outsourcing providers can help handle complex payroll needs, such as garnishments, tax levies and benefits administration.

6. Scalability

Outsourced payroll solutions can easily scale as the business grows, accommodating more employees or more complex payroll requirements without major internal changes. They also can enable businesses to expand across state boundaries and support multi-state payroll.  

7. Enhanced data security and privacy

Reputable payroll providers offers data security by implementing safeguards like encryption, secure servers, and access controls. These measures help protect sensitive payroll information and mitigate the risk of data breaches..

8. Comprehensive service offerings

Outsourcing can cover the comprehensive payroll processing cycle, including:

• Time and attendance tracking tool
• Payroll processing and calculations
• Payroll tax filings and payments
• Direct deposit and electronic pay stubs

And all the way to:

• Year-end reporting (Form W-2s)
• Benefits and deductions administration
• Employee self-service portals for pay and payroll tax documents

9. Enhanced employee experience

Employees benefit from timely, accurate pay, direct deposit and easy access to payroll records and tax forms through self-service portals.

10. Reliable customer support

Access to dedicated support helps with prompt resolution of payroll concerns or employee questions, which is critical for maintaining trust and employee satisfaction.

Types of Payroll Administration Outsourcing

There are many options for every type of business and their unique needs, from comprehensive to a more hands-off, a la carte approach.

PEO (Professional Employer Organization)

A PEO can provide a comprehensive solution for efficient HR outsourcing. A PEO is a co-employer with its client, acting as the employer of record for payroll tax purposes while the client maintains control over daily operations and their workforce.

The PEO generally supports the processing of payroll, sending pay, withholding payroll taxes and other deductions, remitting payroll taxes and filing the tax returns. The PEO assumes certain responsibility as allocated in the client service agreement.

ASO (Administrative Services Organization)

An ASO provides outsourced administrative and HR services to businesses, typically small and medium-sized enterprises.

Unlike a PEO, an ASO does not enter into a co-employment relationship with its clients. Instead, the client remains the employer of record for payroll tax purposes, and the ASO supports specific administrative functions on your behalf.

PSP (Payroll Service Provider)

A Payroll Service Provider is a company that manages payroll processing and related administrative tasks for other businesses. Unlike a PEO, a PSP does not enter into a co-employment relationship with the client business. They simply process payroll and support payroll tax administration under a business’s Employer Identification Number (EIN).

Their services may include:

• Payroll processing. Calculating employee pay, making payroll adjustments, withholding payroll taxes and administrating deductions for benefits and other withholdings based on information provided by the client company.
• Payroll tax compliance. Preparing, filing and remitting payroll taxes (federal, state, local) on behalf of the business, including unemployment taxes and quarterly/annual returns.
• Reporting. Generating payroll reports, employee earnings summaries and year-end tax forms like W-2s and W-3s.
• Direct deposit and paychecks. Issuing paychecks or direct deposits to employees, so that they’re timely and consistent.
• Benefits administration. Some PSPs also help administer employee benefits, handling deductions and reporting for things like health insurance and retirement plans.

Comprehensive Payroll Administration Outsourcing

Comprehensive payroll administration outsourcing is a solution where a business can outsource certain payroll processing to a specialized third-party provider. This approach is designed to help companies, especially those with complex or growing needs, of the burdens of payroll processing, allowing them to focus on what really matters.

A comprehensive service can provide most of the basics you'd expect, with some additional benefits that may surprise you, such as:

Benefits and deductions administration

Administration of complex deductions, garnishments and benefits can help support an efficient payroll processing.

Employee self-service

Employees can access pay stubs, payroll tax forms and payroll history through user-friendly portals, enhancing transparency and satisfaction. Paperless payroll is always appreciated by employees and employers alike for its ease and accessibility.

Reporting and analytics

Outsourcing providers offer robust payroll and custom reporting, supporting reviews, compliance and business decision-making.

Year-end processing

Preparation and distribution of year-end tax forms (such as Form W-2s), as well as reconciliation and reporting.

Documentation and recordkeeping

Outsourcing providers can help store onboarding documentation, new hire reporting and provide a centralized location for employee records.

Client support

Dedicated teams can help address payroll concerns from both employer and employee questions.

Integration capabilities

Leading providers can smoothly integrate payroll with popular HR, accounting and other business systems, helping to reduce manual entries and enhancing data consistency.

A Trusted Payroll Service Provider

Choosing an outsourcing provider to support your business payroll services is a critical decision. TriNet offers services at the PEO and ASO levels.

TriNet offers unique services, like Payroll Manager—a comprehensive service that pairs advanced technology with on-demand payroll expertise. Dedicated payroll experts can help with both scheduled and off-cycle pay runs for your workers, on top of the ability to review pay runs beforehand at your request.

Renee Rizzuti, CPO of CES Group Engineers says TriNet stood out among the rest: "What differentiated TriNet from all the other PEOs that we explored was the full array of services. The people that we were interacting with and the demonstration of the tools and resources available to us were the deciding factor."

Looking for more ways to enhance efficiency and make the most of your business? Download our free eGuide: Payroll Pitfalls: Avoiding Mistakes That Can Cost Your Business.