Payroll Outsourcing vs In House: How To Choose 

As a business, payroll is one of your top priorities. If you are struggling to do it all yourself, you might have considered payroll outsourcing as a way to take the admin off your to do list.

Deciding on outsourcing or in-house payroll will depend on your schedule and business model.  

Before you make a decision to outsource, let’s go through how in-house payroll actually works, the benefits and drawbacks of outsourcing, and questions you can ask to help you decide which model is right for your business. 

Payroll is the system you use to make sure employees get paid. In-house payroll is when someone inside your business processes these payments for everyone. 

This is usually a payroll admin, a manager, or someone in the finance or human resources department. They are responsible for both paying wages and paying individual income tax to IRD. 

For in-house payroll, you or your designated payroll staff will need a few key tools:

• Employee timesheets (paper or electronic)
• Employee data on file so you know their tax codes
• A system for recording data
• Access to bank accounts to pay each employee (if you don’t have a software that does it for you)
• Access to IRD account for payday filing (if you don’t have a software that does it for you)
• Template or system for creating employee payslips (you are not obligated to send out payslips, however you must have this information on file if an employee ever asks for it) 

You can do all of this manually on a spreadsheet, however you will need to accurately calculate payroll deductibles and keep records for seven years. Using a payroll software like Smartly is much simpler, especially as your business grows. 

Payroll outsourcing is when you hire a third-party or individual to process your staff payments. 

They make sure employees get paid and automatically make deductions based on employee timesheets, tax codes and leave. 

Basically, outsourcing payroll means that you have a professional taking care of processing payments. They balance your payroll ledger on your behalf. This means that you don’t have to worry about getting them done or meeting your employee tax obligations. 

Every payroll outsourcing service will work slightly differently, but these are the basic steps for getting started:

• You choose and sign up to a provider, including any software that they use 
• They collect employee data to accurately process payments
• They will automatically process payroll based on timesheets and other employee data every pay cycle
• They will usually have you or someone in your team do a final check before authorizing payment

There will always be pros and cons to every payroll solution. Let’s go through some of the advantages of outsourcing payroll and hiring outside help to get it done every pay cycle. 

Payroll has a lot of moving parts, and as a business you have a lot of obligations to both your employees and to IRD. Outsourcing payroll means that experts will take care of this so you know you will tick all the right boxes every pay cycle. 

It’s easy enough to pay people an hourly wage. You just multiply the number of hours they work by their hourly rate. 

However, paying the wrong amount for things like tax deductions, public holidays, leave, sick days and ACC levies put you at risk of fines. 

A good Payroll service provider will make sure you are following all the rules for taxes and wages specific to New Zealand. However, as the business owner you are legally responsible to make sure your payroll is done right.  

Whether you have two employees or 200, payroll outsourcing can save you time and money. For larger companies, on average it takes one full time employee to do payroll for 250 people.  Checking timesheets, following up on leave and double checking everything all takes time. If you are busy running the day-to-day business, outsourcing could be a good way to make sure everyone still gets paid without losing your mind. 

As professionals, payroll services have high standards for encryption and privacy. It can also reduce the chances of things like embezzlement and internal data breaches.

Now that we’ve covered the advantages of outsourcing payroll, let’s go through some of the potential disadvantages and why you might want to keep doing payroll in-house. 

Even though outsourcing payroll means you have less tasks on your to do list, there is still room for human error. 

They will process your payroll based on the information that you provide. That means timesheets still need to be correct, employee data still needs to be accurate, and mistakes from manually entering information can still happen. 

Ideally you would choose a service that can accept electronic employee timesheets to avoid problems like this. 

You are still the last line of defense for your business. Even though they are processing and paying wages on your behalf, you are still the business owner. 

It is important to choose a service that has high rates of compliance and great reviews from other businesses. 

You might have some concerns about outsourcing payroll because you no longer have control of the process yourself. This is normal when you start to delegate tasks, however you can still put checks in place to avoid mistakes. 

Again, it is important to choose the right payroll services. You have the right to ask what their services include, how they mitigate mistakes, and what their process is for making sure you meet IRD requirements on time. 

IRD and employees are legally allowed to request data for seven years. You need to be sure that you can access this sensitive data even if the payroll provider goes out of business. 

Outsourcing payroll versus in-house will depend on your individual business needs. 

While outsourcing means that professionals are taking care of the finer details, it also means that you let go a bit of control and still need to liaise with timesheets. 

Here are a few questions to ask when you are deciding between outsourcing payroll and in-house payroll: 

• Could you use simple in-house payroll software instead?
• Is there somebody in your own team that could do in-house payroll instead of you?
• What could you or your team be doing if you weren't spending time doing payroll?
• Do you have a system for timesheets that would make it simple to outsource to a third party?
• Do you need help meeting your IRD obligations and would prefer a professional to double check for you?
• Are you growing your business and need better systems for things like payroll?
• Are you prone to making mistakes with systems and software and don’t want to mis-pay employees? 

Smartly has solutions for both in-house and outsourced payroll for New Zealand businesses. With an in-house payroll software, you get the benefits of payroll automation without completely letting go of control. Smartly's simple payroll software lets employees electronically add and check their timesheets, and automatically withholds tax deductions and submits everything to IRD at the click of a button. While the fully managed payroll option lets you hand over your payroll to a team of payroll processing experts.

There is no right or wrong when it comes to outsourcing payroll. You can always change your system as your business grows and evolves. 

For a simple in-house or outsourced payroll solution, Smartly is here to help. We know payroll can be a headache. At Smartly, we make it simple to pay your people on time, accurately and in line with regulation. We lie awake at night thinking about things like the Holidays Act, PAYE and payday filing requirements so you never have to!

Book a Smartly demo today and see just how simple payroll can be. 

Not using Smartly yet?

If you want to learn more about how your day-to-day tasks can be made simpler, you can chat to us to get some insight on how payroll software could benefit your business. Smartly can make the complex tasks seem simple including payroll, timesheets, leave and more! Smartly takes care of most of the faffing, so you can focus on the important stuff.