Payroll Processing Companies vs. All-in-One HR Software: Pros and Cons

When it comes to managing a business, making sure you’re paying your employees properly is of critical importance. If you mess up workers’ paychecks, you’ll have an unhappy staff on your hands.

If you fail to pay on time, meet compliance and other legal requirements, or make a mistake in taxes, it can be a very expensive problem to fix. Besides repairing damaged relationships with employees, you may face hefty fines or penalties for failing to meet tax obligations. The IRS handed out more than $6 million in penalties to employers in 2020 for missing or miscalculating employment taxes.

Outsourced payroll vs. HR software: What’s the difference?

Whether you outsource payroll administration or handle it yourself, there’s a lot to keep track of. Managing payroll requires expertise with:

• W-9 forms and accurate tax deductions
• Managing employee withholdings
• Calculating and submitting quarterly and year-end payroll taxes
• Tracking employee benefits, eligibility dates, and enrollments
• Handling Social Security and Medicare (FICA) deductions
• Maintaining eligibility for tax credits
• Updating federal, state, and local tax guidelines
• Calculating and submitting quarterly and year-end payroll taxes
• Managing 401(k) or retirement programs
• Maintaining compliance with government regulations

Any way you approach it, it’s a complex, detail oriented, and time-consuming job that’s often misunderstood. One recent survey of small businesses showed that 63% of owners underestimate the time it takes to process payroll.

When you outsource payroll, you contract with a third party provider to handle payroll administration. These companies will take on the payroll processing and all the above responsibilities. However, you’ll still have to ensure the information provide is accurate.

HR software allows you to handle payroll processing and administration in house. When you choose an all-in-one HR software solution rather than basic payroll software, you get an integrated platform that goes well beyond simply running payroll. An all-in-one HR solution helps you with every aspect of managing employees.

Pros and cons of outsourcing payroll

Should you outsource payroll or use an all-in-one HR software solution? Let’s talk a look at the advantages and disadvantages of each, starting with outsourcing.

Pros of payroll outsourcing

• Saves time and reduces the administrative burden
• Can handle tax filings for you
• Expert help for payroll concerns
• Expert monitoring of regulatory compliance

Cons of payroll outsourcing

• Lack of internal control
• Can be costly
• Even if the payroll company makes errors, businesses are still responsible
• May require paying for services you don’t need or use

Next, let’s look at the pros and cons of handling payroll in house and using HR software.

Pros and cons of HR software

Instead of outsourcing, HR teams can use payroll software to make changes and updates easily. The best payroll software for your organization will make it easier for HR teams to:

• Select payment methods for employees
• Calculate wages and payroll taxes
• Store pay and scheduling data
• File federal, state, and local taxes
• Track employee time
• Store data about benefits, deductions, and retirement plans
• Retrieve data to run reports

Here are the pros and cons of using an integrated, all-in-one HR information system.

Pros of all-in-one HR software

• Handles everything from payroll and benefits to onboarding and org charts
• Manages timesheets, scheduling, and time-off requests
• Integrates goals into performance reviews and tracks progress
• Facilitates employee communication and conversations
• Less expensive than outsourcing

Cons of all-in-one HR software

• Requires proper setup to work efficiently
• Learning curve for HR teams
• DIY increases fault for any mistakes
• Greater responsibility for security of employee records
• Must stay up to date on changing tax codes, regulations, and compliance issues

Learn more about choosing the best HR software for your business.

Why you should consider an all-in-one HR solution

HR managers say they waste nearly 2 full days a week doing things manually that could be automated. Over a year, that adds up to more than 90 days.

Even if you outsource your payroll, managing HR functions still takes time. HR managers say they waste nearly 2 full days a week doing things manually that could be automated. Over a year, that adds up to more than 90 days. Imagine what else you could be doing with an extra 90 days a year.

When you use an all-in-one HR software solution, you can recover that time.

You can eliminate manual processes and most employee paperwork. Create self-service options so that employees can enter information directly and access employee handbooks, safety procedures, benefits enrollment forms, and more. This lessens the time it takes for onboarding or updating records and reduces human errors from rekeying.

Outsource or in-house?

When deciding whether to outsource your payroll or manage it in house with payroll software, consider using an all-in-one HR software solution. An HRIS can automate much of the HR workload, saving you time and money while keeping you compliant.