Management tips Payroll and HR

Process your
payrolls in
house or
outsource?

Payroll processing is an issue that gives many an SMB owner a headache. Some people want to convince you that outsourcing is the best possible approach, while others argue that it's better to process payroll in house. How do you decide?

Being involved with several businesses that choose one or the other, we believe that there is no absolute answer to this dilemma. In reality, it all depends on each business's context: Available resources, size of the business, reality on the ground, each individual entrepreneur's preferences and experience, etc.

To help you determine what's best for you, we propose a few areas of reflection on the topic.

Time

Entrepreneurs who opt for outsourcing often explain their choice by raising the argument that they save time by delegating to a third party the responsibility for calculating the payroll, issuing cheques and pay slips and producing government slips.

However, you have to keep in mind that more than 80% of the time devoted to producing payroll involves tasks that must be done in house: Managing employee files, gathering payroll data (hours worked, benefits, vacation).

Yes, you do save time, but you shouldn't overvalue these savings and think that you can simply outsource everything and do nothing.

Data security

The security of your payroll data is absolutely fundamental, since it contains an enormous amount of confidential information about your employees and your business practices.

Since it is a very important issue, make sure to ask the right questions if you opt for outsourcing:

• How will the payroll data be transferred to the sub-contractor?
• Is this method secure?
• Will the data be stored in Canada?
• Does the place where the data is to be stored comply with the strictest security standards?

If you decide to process your entire payroll in house using a specialized application, you will have more control over where your data goes. However, you will also be responsible for ensuring data security.

Flexibility and control

Outsourcing frees you from certain responsibilities, but also obligates you to relinquish control of a portion of your operations to a third party. If you prefer to maintain the highest level of flexibility, you should process payrolls in house.

Even if your sub-contractor offers exceptional service, you will necessarily have a waiting period each time you make a request. You also have to work with the sub-contractor's business hours. And you are never safe from communication errors when you do business externally.

If you want to manage everything in real time (make last minute adjustments, make a payment outside the regular payroll cycle, etc.), you will be more comfortable processing your payroll in house. You will also have access to your entire payroll data at all times, a major asset to help with decision-making.

Money

Either way, payroll processing is an expense. Producing payrolls in house means buying a specialized application, while outsourcing involves paying fees to a third party. The difference between the two is the way the expenses are distributed.

Buying and maintaining a specialized application is a fixed expense. The costs remain the same, regardless of the use you make: The number of payrolls you produce, the frequency with which you produce them, etc. For outsourcing, sub-contractors generally bill based on the volume of work. Therefore, the more payrolls you give them to produce, the higher your costs will be.

To optimize your business's financial resources, you should analyze your needs based on your specific situation. Think mostly medium and long term: In 5 years, will your outsourcing fees exceed the payroll software purchase and maintenance costs?

Get the right tools

If you choose to manage your payroll in house, make sure you have the right tools and good support. The working world is very dynamic: It is perpetually changing with tax laws and rules. To ensure that you comply with these laws and rules, choose an application that is rigorously updated by trustworthy people.