Should You Outsource Your Payroll in 2021?

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By: Whitney Hodge

Published: September 22, 2020

Investing in a payroll company is a big decision for a business. Since you clicked on this article, it’s clear you are interested in learning more about how outsourcing payroll can help your business run more efficiently and help improve employee satisfaction.

When you are thinking about hiring a full service payroll company, ask yourself the following questions to see if outsourcing payroll is the right move for your business.

5 Questions to Ask When Considering Payroll Outsourcing

Are you looking for a way to save time and increase the productivity of your HR employees?

Payroll processes take a lot of time to do and do right. You are required to keep track of benefit deductions, any garnishments, new hires, terminations, paid time off, and all relevant state and federal regulations. When tax time comes around, you also need to add in the time it takes to process W2s for each of your employees.

When you outsource your payroll functions, you free up your employees in charge of HR functions so they can focus on your core business. Your HR employees can spend time helping your employees with questions and issues that only an in-house HR person can. If you are your HR team, payroll outsourcing can free up your time to do the things you need to in order to grow your business.

Are you worried about incurring IRS penalties?

When your HR employees split their focus between payroll activities, other HR functions, and aspects of your core business where you need their help, you risk them making mistakes that will end up costing you money. According to the IRS, 40% of small businesses pay an average penalty of $845 for late or incorrect filings. Payroll mistakes are a red flag for the IRS and can anger your employees at the same time.

When you work with an outside payroll firm, you don’t have to worry about staying up to date on the latest state and federal regulations that impact your payroll obligations. With many firms, you also don’t have to worry about late filing penalties since the company you work with will assume responsibility for timely submissions and transparent communication, as long as they have the information and funds needed on time. An outside payroll company will also calculate payroll taxes and manage all of your filings and payments as well.

Do you worry about losing crucial payroll expertise if an HR employee leaves?

Turnover and the resultant loss of expertise is a real worry for small- to medium-sized business owners. When you rely on one or two people to run your payroll functions, you run the risk of losing that knowledge when those people move on to another job or have to take an extended leave of absence. Having to take the time to train new employees on something as critical as payroll can cause frustration among your other employees.

Outsourcing your payroll functions can help with this problem in two ways. An outsourced payroll team’s only job is payroll. They are paid to research and study all of the constantly changing regulations, withholding rates, and government forms that affect payroll functions. They have the expertise to incorporate all of your benefits, including a 401(k) plan, into your payroll functions as well. You also don’t have to worry about losing the only key employee with payroll expertise since you have a contracted team of experts who will work hard to ensure payroll continuity, no matter how your business grows or your human resources evolve over time.

Do you want to increase the security of your payroll function?

Believe it or not, keeping your payroll functions in-house is one of the least secure ways to run payroll. You run the risk of your employees tampering with files, embezzling, or stealing other employees’ identities. As a small- or medium-sized business, it’s also more difficult to keep the data out of the hands of cybercriminals. While your payroll software itself may have built-in security features, if you’re housing the data on a server or network, there is always a risk that security flaws can make it vulnerable to cyberattackers.

A third-party payroll company makes it their business to keep your payroll data secure. They have a larger security budget and can invest in the latest data security technology to keep your employees’ data safe and sound. Typically, payroll firms are also able to invest in highly-secure cloud servers that use cutting-edge encryption technology, along with redundant data backups.

Do your HR and non-HR employees want access to more services and features?

When your payroll function is run by one or two people, it’s hard for them to do much more than process payroll. When you outsource to a professional payroll firm, you get access to a wider range of services and more highly sophisticated tools for your employees to use.

With Lloyd & Hodge, you get access to experienced accountants and a full range of accounting and tax services, including:

  • New hire reporting
  • Direct deposit
  • Employee financial wellness program
  • Dedicated payroll specialist
  • Labor compliance kits
  • Onboarding tools
  • Background screening


Payroll can be time consuming and difficult to manage. Let us make your employees happy with a cloud hosted system that’s accessible online and from mobile devices. Direct deposit and pay stub access 24/7.

At Lloyd & Hodge, our full service payroll manages all types of employees including W-2, 1099 contractors, and freelancers. We offer a flexible payroll schedule so you can pay employees when it works for you and on your schedule. Contact us today to see how we can free up your time, save you money, and increase your employee satisfaction.

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