In-House Payroll Software vs. Outsourcing: Choosing the Best Approach for Your Business

Filip Dimkovski - TBR writer
By Filip Dimkovski
Kirsty Macdougall - Editor for TBR
Edited by Kirsty Macdougall

Published September 13, 2022.

A seemingly positive professional seated at her desk, working on her computer as she holds a stack of papers in one hand.

Payroll processing is essential for employee satisfaction, ensuring both accurate and timely payments.

There are many factors to consider when deciding whether to outsource your payroll or keep it in-house. Both models have pros and cons, so it's essential to evaluate your options carefully before making a decision.

Let's dive deeper into these payroll solutions and uncover their benefits.

In-House Payroll Software & Its Benefits

In-house payroll refers to the process of managing employee payments within the boundaries of your company. This is usually done with the help of a software solution that automatically calculates employee compensation and delivers it to the HR team.

Once you've set up the payroll software, it automatically computes all calculations for you. Streamlined payroll processes save time so the HR department can work on other projects.

Here are a few of the main benefits that in-house payroll software offers:


In-house payroll systems offer more control and flexibility than outsourcing. In most cases, you can tailor the software to your company's specific needs and preferences.

Additionally, you can decide when and how often employees are paid and which benefits they're entitled to without having to trust a third party with your information.


Another advantage of in-house payroll software is that you control the entire process. This means you can be sure that your employees will be paid on time and that their personal information will be kept safe.

Moreover, you won't have to worry about data breaches or other security issues, as all the information will be stored on your own servers.

Easy Tax-Compliance

In-house payroll systems can also help you comply with tax regulations more easily. This is because the software automatically calculates the correct amount of taxes that need to be withheld from each employee's paycheck.

Additionally, the system can generate reports that help you keep track of your company's tax obligations. This way, you'll always keep abreast with the latest tax laws.

Payroll Outsourcing & Its Benefits

It's common to outsource payroll services in 2022. Payroll outsourcing refers to partnering with another company to manage your payroll responsibilities. Usually, this is a company consisting of financial experts that make the calculations and payments for you while keeping you up to date with the process.

After you've partnered with a third party to manage this for you, you'll have to give them access to your company's data, like hourly rates, timesheets, tax deductions, and employee benefits. From there, they'll create a dedicated team to manage your payroll responsibilities.

Let's take a look at the benefits of this payroll management model.

Easy Setup and Low Maintenance

Payroll outsourcing is often considered the simpler and more convenient option, especially for small businesses. This is because you won't have to invest in software or hire extra staff to manage the process.

Instead, you can simply outsource the entire payroll function to a third-party provider. This way, you can focus on important aspects of running a business, like acquiring new clients and running marketing campaigns, while the provider takes care of employee payments.

Timely Paid Taxes

Another benefit of payroll outsourcing is that you can be sure that your taxes will be paid on time. In most cases, providers offer tax-filing services as part of their package.

This means they will calculate the correct amount of taxes that need to be paid and file them with the appropriate authorities, ensuring that you remain tax-compliant.


When you outsource your payroll, you can be sure that all the calculations will be done correctly. This is because most providers use sophisticated software to calculate and track employee compensation.

Additionally, they often have a team of experts who double-check the calculations before making payments.

How to Select the Right Model for Your Business

Outsourcing payroll can save you time and money, but it can also be less reliable than an in-house solution. On the other hand, in-house payroll software is oftentimes more complex and time-consuming to set up, but it offers much more control and flexibility.

So, which is the best solution for your business? It depends on your specific needs and preferences, but oftentimes, an in-house payroll software solution is the better option.

Both models offer a wealth of benefits, but in-house software never requires you to surrender your data to a third party. This is especially important, considering your company will be held accountable if a data breach happens and not the company you partnered with.

What This Means for Your Company

Although payroll outsourcing can be an excellent option, having an in-house software solution handling most of the difficult work for you might be better.

With it, the HR and finance departments can abandon manual payroll operations, as they will be fully automated. As a result, personnel have more time available to focus on other important tasks like increasing productivity and growing the company.

If you're considering investing in such software, check out our reviews of the best payroll software.

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