The Benefits of In-House Payroll vs Outsourcing

Organizations are often thinking about how to better manage their payroll, and it’s no surprise why this is always top of mind – employees are the lifeblood of organizations and can account for around 80% of overall expenditure in the public sector. Ensuring that they are paid on time and correctly is of the utmost importance.

With that in mind, Sparkrock is excited to present a mini-blog series that goes over the entire payroll process, and the advantages and disadvantages of the 2 types of payroll management options: managing the process in-house versus outsourcing to a service provider. Both have their merits, but the best option will ultimately depend on your organization’s unique set of needs.

Today’s blog post provides a high-level understanding of these options, and 2 subsequent posts will cover the following:

• Blog #2: In-depth analysis: In-House vs Outsourced for a variety of payroll needs
• Blog #3: Evaluating what’s right for you (Action plan)

IN-HOUSE VS OUTSOURCING

So what’s the difference between in-house and outsourced payroll? The 2 main factors are staff and technology involvement: in-house solutions require higher staff and technology involvement, and outsourcing requires lower staff and technology involvement. Most organizations have a payroll solution that falls somewhere between each end of the spectrum.

With an outsourced solution, you might capture all payroll information on printed forms and send this information to your payroll provider. Your organization has no direct access to the underlying application or calculations, but you would end up with finished paychecks. The provider manages data entry, calculations, payroll check processing, and other activities in the payroll process.

However, they do not manage allocating the payroll expenses to your GL accounts, which creates pain for clients who outsource. One person’s pay may need to be split between different GL accounts where hours need to be allocated based on activities in different program areas/locations/clients, etc, which is often the case for staff who work in a program capacity in social services agencies. This becomes a burden for the finance team.

Conversely, with in-house payroll, you have a solution that is accessible by your payroll staff. Your team captures all employee information in your system, and your payroll team manages the entire process, from data entry and calculations to funding and remittance. While you have the disadvantage of requiring slightly more staff effort, you also get more control over your payroll process and access to data with more details.

QUESTIONS TO CONSIDER

Finally, to get you to start thinking about how to design the best payroll process, here are a few questions you might want to ask:

• Which steps in your current payroll process cause you the most pain? How much time and effort do these steps cost your organization?
• What risk, if any, does your existing payroll process pose to your organization?
• Are you ready to hand over some (or all) of the control of your valuable information to an outsourcing provider?
  • How would outsourcing impact your team’s ability to budget and forecast salary information accurately?
  • How would outsourcing impact your team’s ability to allocate wages accurately and efficiently to your locations/programs/division/clients etc at the GL level? What is the impact of losing this level of detail (if any)?
• Are all of your staff paid on a salaried basis, or do you have staff who are paid on an hourly basis via schedules/timesheets? If so, consider payroll options that allow for integrated time and attendance.
• Can you live with the amount of details provided by a service provider or do you need more insight into your labor costs?

In Part 2 we will look at the advantages and disadvantages of using each of the 2 types of payroll for a variety of different payroll functionality.

Continue Reading: The Differences between Inhouse and Outsourced Payroll Part 2

If your organization is curious about how an in-house payroll solution can make your payroll process easier, visit our Payroll page to see more details about our solution’s functionality, or contact us to learn more.

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