How Many Companies Outsource Their Payroll?

The Milestone Team December 20, 2022
How Many Companies Outsource Their Payroll?

The data for outsourced payroll services can be misleading. Most companies use a payroll software, which takes a portion of payroll processing and gives it to a SaaS business. However, there is still payroll management and processing that can be outsourced on top of that. This distinction is why the data can be tricky. An article from Forbes states that all 12% of companies currently outsource their entire payroll function. 

What Is Outsourcing Payroll? 

Outsourcing is a business strategy that leverages a third party company to take over an aspect of your business. Payroll outsourcing is hiring a third party company to manage and process your internal payroll. Outsourced payroll companies may also advise on payroll software selection, payroll training, or payroll configuration. Here’s how an engagement with an outsourced payroll company could look. 

Find your payroll company.

The first and most important step is finding your payroll company. This is the biggest task of working with an outsourced payroll firm. Teams should evaluate fit based on needs, experience, size, and support. One question to ask is, “Do I care more about a dedicated payroll person or am I okay with reaching out to support services?” Get to know the company’s client base, security, and procedures to see if they align with your vision. 

Select a payroll system.

The first advice an outsourced payroll organization should give is about payroll system selection and configuration. Not all organizations need this guidance, but the outsourced company should provide their recommendations to demo based on an understanding of your business. 

Align on current processes.

A good payroll professional should be used to jumping into a new company’s processes. However, it is always important to take time to align on best practices, anomalies, and expectations.  

Set-up a communication cadence.

Communication is essential for managing payroll accurately. Payroll professionals need to be plugged into any raises, hires, fires, promotions, restructures, etc. Therefore, it’s important to establish how these communications will happen between you and the outsourced company. 

Outsourcing payroll companies typically bill on either an hourly or per employee per month basis. PEPM rates average between $15-$25 per employee per month. Hourly rates range from $20-$45 an hour, but are largely dependent on the complexity of your pay structures. 

Why Do Companies Outsource Payroll? 

More and more small business owners are seriously weighing the pros and cons of outsourcing payroll. The average payroll for small businesses isn’t exhaustive, but it is time consuming nonetheless. Plus, the payroll error rate is extremely high. The IRS collected $7 billion in their payroll auditing last year from an estimated 1/3rd of businesses. 

Payroll errors are the first reason many companies outsource their payroll. They do not have the expertise in-house to run a compliant payroll, so they outsource payroll to a professional. A second reason companies outsource payroll is because of the time saved. Each payroll period takes about five hours of a small business owner’s time on average. Offloading this process saves lots of time for key employees in your business. 

Finally, small businesses outsource payroll because it’s relatively inexpensive. The peace of mind and time you get in return for outsourcing your payroll makes the cost well worth it. Especially for small businesses, since outsourced companies tailor their pricing based on the number of employees.

What Percentage of Companies Outsource Payroll? 

According to Forbes, payroll outsourcing statistics state that 12% of companies outsource payroll. However, other sources rate the outsourcing of payroll to be as high as 50%. Outsourcing payroll is a strategy small businesses should consider. Saving time and ensuring compliance with federal and local regulations can take a lot of stress off the shoulders of a small business owner.

How Milestone Makes Payroll Simple.

Milestone’s team of payroll experts have years of experience running payroll. We’ve handled a wide range of payment structures and processing cadences. Our strength is in our team’s ability to leverage varied experience to match your particular needs. We make payroll simple, so that you can use your time to make a difference with your business. Reach out to Milestone today to get help with payroll services for your small business.

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