How to Know if You Need to Run Payroll In-house

5/19/2012 Carsten Howitz ERP

When Should You Consider Running Payroll Yourself?

Does it make sense to run payroll in-house or should you consider out-sourcing it? Well, it all depends. Most companies will be well off outsourcing it and saving the headache of running it in-house, while other companies may benefit from running it themselves.

Overall I think payroll is a big headache. There are constant changes to federal, state and local tax rates, statutory changes, and tons of penalties if you miss deadlines etc. Unless you plan to hire a full time payroll specialist you should outsource payroll. When you outsource payroll someone else will take the responsibility of adhering to regulations and file and pay taxes on time. If they screw it up, they will pay the penalties and fix your problems. It is almost like an insurance policy. You pay someone else to take the risk for you.

So why would anyone in their right mind ever consider running payroll in house?

If a company has many employees there could be a cost benefit having the payroll in house. If the same company has complicated time entry requirements like many hourly employees reporting time on different projects that later is handled by the payroll system it starts making sense to run the payroll as an integrated part of the ERP and job entry system.

Usually companies that have these kind of complex requirements already know they need to run payroll themselves, so when should you consider doing the same?

If your employees are entering time into a time keeping system, and this data is needed to generate the details for the payroll, you are most likely a candidate for an in-house payroll solution. Otherwise you have to provide all this data to your payroll provider and that can be cumbersome and costly.

You might also be a candidate if you have complex payroll calculations like makeup pay for wait staff where the company has to makeup their hourly pay if their tips don’t bring them over the federal minimum. Those kinds of calculations most often will not be provided by a normal payroll provider and must be calculated in house any way.

Usually I don’t recommend running payroll in house if you are not one of the above exceptions. There are so many risks associated with running your own payroll and unless you are a payroll professional it can be tough to follow all the rules and make sure that payroll is run correctly.


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