HR Support on Outsourcing Payroll Services

Editor's Note: Know all the pros and cons before deciding to outsource payroll.

Rena PirsosOverview: Employers commonly outsource some or all payroll processes to a third party payroll service to be relieved of the responsibility for withholding income and employment taxes from its employees' pay, and for reporting and remitting the amounts withheld to federal, state, and local authorities, among other payroll tasks. For example, business process outsourcing (BPO) is a popular option for employers that want to outsource an entire function, responsibility, or department to a third party company. A BPO company can handle internal business functions such as HR, payroll, information technology, accounting, and customer service.

The decision to outsource should be based on the needs and goals of the employer. There are many advantages and disadvantages of outsourcing that employers should consider before making any commitments.

Some of the advantages include:

  • Reduced overhead;
  • Staff is freed up for other functions;
  • Allows the employer to focus on its core business; and
  • Efficiency and expertise of the third party payroll service.

Some of the disadvantages include:

  • Confidentiality of information may be compromised;
  • Loss of a certain amount of control;
  • Hidden costs; and
  • Financial risks - If the third party payroll service goes bankrupt or otherwise fails to fulfill its obligations, the employer is still liable for meeting its payroll tax and reporting obligations!

Author: Rena Pirsos, JD, Legal Editor

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Key considerations for HR in outsourcing payroll.