Is Outsourcing Payroll Cost Effective?

What is the average cost of payroll processing?

The average cost of payroll processing varies based on your company size and services needed. It also depends on whether your business handles payroll in-house or if you choose to partner with a payroll service provider (PSP) or a professional employer organization (PEO). Let’s take a look at the average costs of payroll processing for each of these options:

• In-House: Managing payroll in-house is often quite costly and time-consuming. In fact, the average cost of in-house payroll management is about $2,000 per employee annually. Factors that contribute to this cost include the need for dedicated HR staff, technology investments, and ongoing training to stay compliant with ever-changing regulations​​. Additionally, in-house payroll processing can divert attention from core business activities, impacting overall productivity and growth.
• Payroll Service Provider (PSP): PSPs focus solely on payroll tasks, including wage calculations, tax deductions, and payroll reporting. They typically charge a monthly fee based on the number of employees, making them a more straightforward and potentially less expensive option for businesses with established HR capabilities. However, PSPs do not provide the additional HR services and support that PEOs offer.
• Professional Employer Organization (PEO): Partnering with a PEO like G&A Partners can be a cost-effective solution, averaging around $1,395 annually per employee. This fee often includes comprehensive HR services such as payroll processing, benefits administration, compliance assistance, and more. PEOs streamline HR processes and reduce administrative burdens.

Determining how much it costs to outsource payroll involves weighing the benefits against the costs of in-house management. While PSPs offer focused payroll services, a PEO can provide a more comprehensive solution, delivering significant savings and efficiency gains. These savings stem from reduced labor costs, technology investments, and the elimination of errors associated with in-house payroll. Ultimately, the decision to outsource depends on the specific needs and budget of your business.

How to categorize payroll service fees

Understanding the various fees associated with payroll services can help you manage costs more effectively. When considering the cost of payroll services for a small business, it’s important to categorize the fees to get a clear picture of overall expenses, including:

• Basic Service Fees: These cover standard payroll processing, including calculating wages, deducting taxes, and issuing paychecks or direct deposits. The payroll services cost for small businesses usually falls into this category, covering essential functions like making sure employees are paid accurately and on time.
• Tax Filing Fees: Payroll service providers often offer tax filing services as part of their packages or as an add-on. This fee covers the preparation and submission of payroll-related taxes, ensuring compliance with federal, state, and local regulations.
• Year-End Fees: These fees are associated with generating and distributing year-end tax forms such as W-2s and 1099s. This service ensures that all necessary documentation is prepared and sent to employees and contractors, fulfilling annual tax obligations.
• Additional Service Fees: Depending on the provider and the specific needs of your business, there may be additional fees for services such as direct deposit, garnishment processing, and handling of benefits deductions. These fees can vary widely and are typically itemized in the service agreement.
• Implementation Fees: Some payroll service providers charge a one-time setup fee for onboarding a new client. This fee covers the initial setup of the payroll system, including data migration, customization, and training for any in-house HR team members.
• Support Fees: Access to customer support can be an essential component of payroll services. Some providers include basic support in their standard fees, while others may charge extra for premium support options that offer extended hours or dedicated account managers.

Categorizing these fees appropriately can help you better evaluate if outsourcing payroll is right for your business. By understanding each fee type, you can better assess the ROI and select a provider that offers the best value for your specific needs.

How are payroll fees calculated?

Payroll fees are calculated using different pricing models, depending on the provider and the specific needs of your business. Here are the primary styles of fees:

• Per Employee: This model charges a flat fee for each employee, making it easy to scale costs with business growth. The cost of payroll per employee typically includes basic payroll processing and may vary based on additional services like tax filing and benefits management.
• Flat Fee: Some providers offer a flat monthly or yearly fee for their services, regardless of the number of employees. This can be beneficial for businesses with stable head counts and predictable payroll needs.
• Percentage of Payroll: In this model, the provider charges a percentage of the total payroll. This approach aligns costs with payroll expenses and is common with professional employer organizations (PEOs), which offer comprehensive HR services beyond payroll.

These various pricing models provide you with options – allowing you to choose the payroll services pricing structure that best fits your budget, operational requirements, and growth projections.

Is outsourcing payroll cost effective?

Outsourcing payroll, particularly through a PEO, can be a strategic move that yields significant cost savings and operational efficiencies. By transferring the complexities of payroll processing, tax compliance, and benefits administration to experienced professionals, you can redirect your focus to core competencies and growth initiatives. Moreover, PEOs offer a comprehensive suite of HR services beyond payroll, providing a holistic solution that results in:

1. Reduced Administrative Burden: By outsourcing payroll, businesses can free up valuable time and resources, allowing them to focus on core operations. PEOs handle everything from wage calculations to tax filings, making sure these tasks are done accurately and on time.
2. Cost Savings: While there is an outsourcing payroll cost, the ROI often results in significant savings. PEOs, like G&A Partners, negotiate competitive rates for benefits and streamline HR processes, reducing the need for a large in-house HR team and expensive payroll software.
3. Compliance and Risk Management: PEOs keep up with ever-changing payroll laws and regulations, minimizing the risk of non-compliance and associated penalties. This expertise is especially valuable for small to mid-sized businesses that may not have dedicated HR compliance staff.
4. Scalability and Flexibility: As your business grows, a PEO can easily scale its services to match your needs, offering flexible solutions that adapt to changing business conditions.
5. Access to Comprehensive HR Services: G&A Partners provides not only payroll processing but also HR management, compliance support, integrated technology, benefits administration, access to affordable, Fortune 500-level employee benefits packages, and more – making it a one-stop solution for all your HR needs.