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Outsourcing Payroll: The Options, Costs and Benefits

Published on

June 13, 2019

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by

Brandi Clymer

Payroll Processing Options

I am often asked what the difference is between In-House Payroll and Outsourced Payroll. The simple answer is “not much.” The reality is that the details found in that “not much” can lift a weight from an already overburdened Payroll Administrator. To make an informed decision requires knowing what each option entails. Each of the options listed can be accommodated by CS3 with Scissortail HCM. Let's begin with one that offers great flexibility, but may not be an option you have seen before.

Hybrid Payroll Processing– The Little-Known Option

SaaS-based solutions like Scissortail HCM make outsourcing much more convenient and provide for a new option that is the Hybrid of the In-house / Outsourced Payroll.

 With the hybrid, the employer processes the payroll in-house and maintains direct access to all employee and pay information with the added convenience of CS3 Technology handling all your tax filings as a standard function of the Scissortail HCM product. Of course, there is always the option to customize your hybrid solution.

 Customizing the service is simple with Scissortail HCM.  The very nature of the product allows the employer to assign CS3 certain functions of the Payroll Process while retaining functions that make sense to their organization.  

Over the years, the CS3 team has learned that each user is unique with specific needs.  These specific needs have been the catalyst to the following list of Top Requested Hybrid Options.

 

Hybrid Offerings:
  • Payroll Processing
  • Print/Mail Payroll Checks
  • Send ACH /Direct Deposit Files to Bank
  • Print/Mail W2s and/or 1095s

Advantage –

·      The employer retains direct access to and control of data

·      Customizable options to save time and resources

·      Updates installed by the vendor

·      Taxes current with local and federal rules

·      The employer does not have to worry about submitting taxes amounts or forms

·      Depending on the option selected, the employer does not have to worry about submitting direct deposit files to the bank

 

Disadvantage –

·      Timing must account for Tax Payments as well as Banking Rules

Outsourced aka Full-Service Payroll

A payroll service will collect wage and hour information from the employer and use that information to calculate gross wages, deduct benefits, and other withholding's.  Then,print checks, send direct deposits, and prepare all tax filings.  

 Traditional outsourcing requires a regular transfer of employee information from the employer to the payroll provider and back.  A closer look reveals that the employer is collecting the time data, entering it into the format acceptable to the payroll service, and transferring the data to the service.  The employer is also responsible for ensuring the service receives all rate changes and new employee data.  

 Depending on the selected provider, you may have difficulty responding to requests for pay history verification and the like because the information resides on the provider’s server.

 

Advantage –

·      Frees up time and resources to focus on core business and managing employees

 

Disadvantage –

·      Difficulty transferring wage and employee data

·      Little or no direct access to employee data

 

Outsourced Payroll with Software Access

When using an outsourced payroll service, there are a few different types offered. Some offer a SaaS product that the employer can access and update. With this type of payroll service, much of the process is the same as with in-house payroll. The employer will maintain employee records, enter time entries if a time system is not in place, maintain deductions and tax withholding status for employees.  

 Once the employer prepares the payroll, they submit the payroll to the payroll service bureau. The service bureau then takes over with balancing, reviewing, and double checking. When everything looks good, they finalize the payroll, send direct deposits to the bank, and prepare all tax filings to go to any agencies.  After payroll is complete, the employer will print any paper checks, get copies of reports, or files needed after the payroll.

 

Advantage –

·      The employer retains direct access to and control of data

·      Updates installed by the vendor

·      Taxes current with local and federal rules

·      The employer does not have to worry about submitting taxes amounts or forms

·      The employer does not have to worry about submitting direct deposit files to the bank

 

Disadvantage –

·      Timing must account for Tax Payments as well as Banking Rules

In-House Payroll

In-house payroll means that the company handles all payroll matters on its own. A typical bi-weekly payroll process for 100 employees will take about 16 hours each period to process. That means about twenty percent of your annual work life is spent processing payroll.  This includes verifying time worked,calculating and verifying pay, as well as transferring funds to banks and benefit providers. Finally, the critical step of filing taxes with each payroll. Each quarter, you can plan another 4 hours on government reporting and another 4 to 8 hours at year end for processing W-2s.

 The payroll rules, regulations, and processing can be complicated. But the right administrator with the help of good advisers (and a great payroll software system) can manage the process efficiently.

 

Advantage –

·      An employer can make last minute changes

·      The employer controls the timing of the process as allowed by banking requirements

 

Disadvantage –

·      The employer must stay current on all regulations

·      The employer is responsible for installing software updates

 

Final Considerations

We have covered many payroll options for an organization, and there are minor differences between each of the options. However, the differences can be significant depending on what is important to your organization and the expertise that you have on staff. As technology changes,it is important to look beyond your current requirements and pick an option that will grow with your organization.

 

 

 

 

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