4 Common Misconceptions About Payroll Outsourcing

Posted by PRemployer on January 16, 2020

4 Common Misconceptions About Payroll Outsourcing

Myths and misconceptions abound regarding outsourcing payroll. While payroll may be a simple concept in theory, it’s more complex in reality -- especially as companies grow.

One of the major causes of misunderstandings about payroll outsourcing stems from a failure to differentiate between who is providing this service. Specifically, there is a big difference between outsourcing to a human resources vendor and outsourcing to a professional employer organization, or PEO.


Sorting the fact from the fiction when it comes to payroll outsourcing can help businesses make the most informed and advantageous decisions. Read on for a roundup of four common misconceptions about payroll outsourcing.

1. Payroll Outsourcing Is Just About Salaries

In many cases, payroll is a company’s most significant business expense. It may comprise a variety of components in addition to salaries, including collecting insurance premiums, retirement plan contributions, and tax withholdings.

From adjusting taxes on third-party sick pay to nontaxable fringe benefits, payroll management is a sophisticated enterprise requiring extensive knowledge of the tax code in order to ensure compliance with all relevant federal, state, and local laws. Not all businesses have in-house staff with expertise in these areas.

2. Payroll Outsourcing Is More Expensive than Doing Payroll In-House

Handling all tasks internally may seem like the most efficient way to do business, especially when you consider what appear to be inexpensive SaaS software solutions. However, charges rise as the number of employees increases. For example, CompensationXL’s Professional Edition has a price tag of $10,000 per year, according to FinancesOnline. And this does not include the opportunity cost of squandering employee talent on payroll instead of on revenue-generating tasks. The takeaway? While handling payroll in-house may seem friendlier to your bottom line, hidden costs can add up.

3. Payroll Outsourcing is Not Safe

Payroll management involves sensitive personal information. However, several steps can ensure credibility and confidentiality when outsourcing payroll. These include checking references, prioritizing a payroll partner with business coverage, assessing how payroll processing will work, verifying a provider’s commitment to keeping data secure through Human Resources Information Systems (HRIS), and selecting a payroll partner with a solid financial standing and history.


By covering all of these bases, you gain critical peace of mind that your payroll processing is in good hands and that your business will be protected if something does go wrong.

4. Payroll Outsourcing Is the Same Whether or Not You Use a PEO

PEOs offer a comprehensive range of services beyond payroll processing. These include human resources consulting, safety and risk mitigation services, employer payroll tax filing, workers’ compensation insurance, health benefits, employer’s practice and liability insurance, regulatory compliance assistance, and more.


Many benefits are associated with partnering with a reputable PEO, including time savings, regulatory compliance, improved security, and reduced costs, including for health plans.


Through a co-employment agreement, employers file payroll taxes under the PEOs tax ID number, meaning the PEO becomes the employer of record for tax purposes. This allows PEOs to negotiate better insurance rates by pooling the purchasing power of all of their clients.


The four myths and misconceptions covered above have prevented companies from taking full advantage of Human Resources. By outsourcing tasks that do not generate revenue, businesses can grow 7% to 9% faster than businesses that do not. That is a pretty good reason to ignore a bunch of myths!


How a PEO Could Lower Costs Related to Your 401(k), Healthcare, and Other Employee Benefits


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