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Last updated: 8 November 2022

In-House Payroll vs. Outsourced Payroll Processing

Should Your Business Outsource Payroll or Keep it In-House?

When it comes down to paying out salaries or wages to company’s employees and handling taxes, payroll service plays a major role in keeping your business healthy. From an accounting perspective, payroll management is directly affecting company’s net income due to being tightly connected with various laws and regulations, and in case of an error, the company is at risk of receiving a penalty.

When taking payroll processing from a human resource point of view, it is essential to understand that payroll should be accurate and employees receive their paychecks without errors. In-house processing can be challenging for small-, medium-, and large-size businesses since errors in paychecks can easily bring down your employees’ morale, and this in turn, creates additional obstacles in achieving common goals. Moreover, every company should be aware of calculating the correct tax, national insurance, pension contributions or child maintenance payments.


Difference Between In-House and Outsourcing Payroll Processing

Every business should decide whether their payroll operations should be done in-house or outsourced by a payroll provider company. The decision is crucial and can cost thousands of pounds. If the company strives to control their own payroll, value their economical privacy, and are constantly dealing with last-minute changes, in-house payroll processing should fit best. Nevertheless, in-house payroll processing requires certain resources and skills from a company.

In order to have error free in-house payroll processing, the company should consider whether they are capable of covering the network requirements, such as operating systems, servers, and specialist personnel for in-house payroll processing. On the other hand, many businesses go with alternative options to in-house processing. If your business tends to have a complicated and time-consuming payroll processing with unstable payroll expenses on a monthly basis and you prefer to focus on your primary business activities, then outsourcing payroll processing could be a solution for you.

Payroll outsourcing services offer businesses a stress-free solution regarding their payrolls, and, on top of that, in many cases, payroll outsourcing service companies can also save your business thousands of pounds by avoiding various penalties for violating governmental tax rules. Moreover, such companies are always aware of changes in tax regulations and often can give your business advice regarding how to handle different types of taxes.

Pros and Cons of In-House Payroll Processing


When it comes down to pros and cons of in-house payroll processing, then cost-efficiency is perhaps one of the main key factors. If your business is small- or medium-sized, employing an experienced bookkeeper can fulfil you needs. Moreover, by having a small business with a fewer than 10 employees, there is the possibility of getting a free payroll software. Such solutions gives your business a possibility to manage payroll at lower cost and remain cost-efficient.

On top of that, in-house payroll processing gives your business the possibility to have easy and instant access to your payroll history or data. Such payroll models gives your business advantages not only time-wise, but also privacy-wise. On top of that, trained accountants can help your business to identify new ways to cut your payroll costs and lower your tax liability.


Even though in-house payroll processing is considered low-cost and cost-efficient, it should be noted that such payroll management model has hidden costs. First of all, if your business has more than 10 employees, it is required to purchase a software, which adds additional costs, and choosing between software’s will likely take some time. On top of that, you need to purchase a computer for an accountant and go through extensive trainings.

Moreover, it is required that you keep an eye on recent changes in personnel and tax requirements, which can be tricky and create additional unwanted hassle. However, having a personal accountant can be dangerous. A single individual who is fully responsible for your company’s finances leaves your business vulnerable to variety of scams, for example, money theft.

Payroll Management

Pros and Cons of Outsourced Payroll Processing


Companies who stick with the outsourced payroll processing method, enjoy a wide scope of benefits. One of the main benefits is saving time. Instead of spending countless number of hours on calculating pay, deductions, and keeping track on recent tax regulations, payroll outsourcing companies give your business the possibility to instead focus on your business’ primary activities and maximise profit-generating actions.

Another benefit what payroll companies are offering is a possibility of enjoying easy payroll services, and, at the same time, you as a business owner, can be sure that you stay compliant with all information and data regarding payrolls. Moreover, outsourcing payroll companies offering a wide set of additional services which can increase your business efficiency.


Using payroll outsourcing services are adding certain limitations to your business. One of the main disadvantages is reaction time on various last-minute changes. For example, adding overtime hours and being able to pay your employee's salary on time. Most of the payroll outsourcing companies have certain rules on how and when give information regarding payroll, and, in case of violation, the company risks receiving a fine.

Another disadvantage is that you are entitled to share confidential and sensitive information to a third-party company, which can pose various risks for your business. What is more, many payroll outsourcing companies are offering a certain set of services and your company at risk of ending up paying for something which isn’t necessary for your business.

When Should Business Choose to Use Outsourced Payroll Processing?

Outsourcing payroll processing can be beneficial for all size companies. One of the main reasons why company should use outsource payroll processing is when you want your business to focus only on its primary activities without spending too much time on secondary activities, which are not directly generating profit.

Moreover, it should be noted that there is a reason why payroll outsourcing services exist, changes in this sector are happening constantly, and you, as a business owner, should take responsibility for keeping your business updated on recent changes.

Furthermore, if your business is going through rapid growth and you feel that you lack the time to hire new specialists, expanding system and software capabilities, along with losing sharp eye over processes, payroll companies can offer your business security, great and easy payroll management at a fair price.

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