What’s the difference between in-house and managed payroll?

What’s the difference between in-house and managed payroll? in summary:

In-house payroll and managed payroll are the two predominant methods for businesses paying their employees. Key differences include:

• In-house refers to managing payroll processes within the company using internal resources, such as dedicated payroll software and dedicated payroll staff.
• Managed payroll, also known as outsourced payroll, involves hiring a third-party provider to handle most or all aspects of payroll processing.
• Whether you choose to process payroll in-house or outsource it, ensuring a smooth, compliant, and efficient payroll process should always be the priority for businesses.

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If money makes the world go round, then payroll is the engine that keeps it moving.

Without it, businesses stall, employees lose vital trust, and operations grind to a halt. Whether managed in-house or outsourced, getting it right isn’t just about cash or numbers: it’s about people, compliance, and keeping the workplace running smoothly.

But, here’s the thing: just what exactly do we mean when we talk about in-house or managed payroll?

It’s a question we get asked a fair bit here at Cezanne, and it’s easy to understand why. Payroll is inherently a complex and critical function, but the way businesses handle it can vary widely – and that’s where either in-house or managed options come into play.

Each approach has its advantages and challenges, and choosing which one’s right for your business depends on several factors; including company size, budget, compliance needs, and resource availability.

So, if you’re not too sure what the difference is between in-house and managed payroll, don’t worry – we’ll break down the key differences in plain English. We’ll also take a look at the pros and cons of each to help you determine the best option for your business.

What is in-house payroll?

As the name suggests, in-house simply means that a business takes care of paying employees using its own team and resources.

That usually involves having payroll software and dedicated payroll staff who handle everything: from calculating salaries and taxes, to making sure the right deductions are applied and employees get paid on time.

Managing it in-house also means staying on top of compliance, keeping up with changing tax laws and tax codes, and generating vital payslips for employees. Basically, everything related to paying employees is managed within the company, giving a business full control over the process.

While this approach works well for some businesses, it also comes with the huge responsibility of ensuring accuracy, staying compliant, and handling any queries or issues.

What are the pros of in-house payroll?

1. Greater control

With everything relating to payroll being handled in-house, businesses maintain full control over their processes, data, and reporting.

2. Customisation

Having full control of payroll means a company can make it tailored to specific company policies, structures, and payment schedules (for example, weekly or bi-weekly schedules).

3. Immediate access

If a company has a dedicated payroll team, issues can quickly be resolved, employee queries answered, and pay adjustments can be made without having to rely on a third-party service.

4. More control of data security

With everything remaining within a business, sensitive payroll information stays within the company. Of course, this also will depend on the right processes and infrastructure being in place (such as ISO 27001 certification, for example).

5. Can be more cost efficient

For SME businesses with small workforces and simple payroll needs, in-house can be more affordable than outsourcing to a payroll provider.

Cons of in-house payroll

Time-consuming

Payroll processing requires significant time and effort, particularly as businesses grow. This is especially true if a small business goes through a period of growth, but continues to rely on manual, paper-based processes, or inefficient / outdated software.

Compliance risks

Payroll laws and legislation frequently change. As a result, a company must employ trained payroll professionals businesses to stay up-to-date with compliance changes and avoid potential penalties.

Higher costs… especially for larger businesses

The bigger your workforce, the more resources you’ll need to process payroll! Large or enterprise-sized companies may need additional staff and dedicated software, which increase operational costs.

Limited expertise

In-house teams may lack the expertise to handle complex payroll scenarios, such as multi-shift patterns.

Software and infrastructure maintenance

Payroll software requires updates, security measures, and sometimes IT support, adding to overhead costs. If these are not handled seamlessly by the provider, it can be a heap of extra work for smaller companies to undertake.

So, what’s managed payroll?

A managed payroll service is basically where an outside provider will do all the work related to payroll – rather than an organisation handling it themselves in-house.

Managed payroll, also known as outsourced payroll, involves hiring a third-party provider to handle processing payments to employees. These providers take care of salary calculations, tax filings, compliance, and payslip distribution, offering a hands-off approach for businesses – essentially everything!

Managed solutions can also enhance accuracy, reducing the high incidence of payroll errors, and ensure compliance with GDPR and security certifications – mitigating risks associated with data breaches. Additionally, these services can offer scalability by adapting to business growth, and provide access to expert support, ensuring seamless payroll operations.

By outsourcing payroll, companies can focus more on strategic activities, improve employee satisfaction through timely and accurate payments, and benefit from the latest technology without the need for in-house maintenance.

Pros of managed payroll

1. Reduced HR & finance workload

The most obvious benefit of outsourcing is that it frees up HR and finance teams to focus on core business activities. In fact, there’s some research to show that outsourced payroll help reduce effort levels for pay activity to drop by up to 70%.

2. Compliance assurance

Reputable managed providers must stay updated with tax laws and employment regulations, reducing the risk of errors and penalties. This means a business doesn’t have to worry about keeping up with ever-changing regulations themselves.

3. Scalability

Managed providers can often easily accommodate business growth and fluctuating workforce sizes. This is perfect if a company’s workforce is seasonal, or undergoes rapid and sudden growth.

4. Access to payroll expertise

Using a managed provider means that businesses benefit from the provider’s specialised knowledge in all-things payroll: including processing, tax compliance, and regulatory changes.

5. Potential cost savings

Of course, while a managed payroll service will come with a fee, businesses can save on other expenditures, such as dedicated software, staffing, training, and compliance-related penalties.

6. Advanced security

As reputable providers will specialise in all-things payroll, they’ll likely have implemented robust security measures to protect sensitive employee data.

Cons of managed payroll

Less control

By asking a provider to take care of payroll, businesses must rely and trust an outsider to manage their payroll processes, which can be a concern for companies that prefer direct oversight.

Dependence on provider performance

Errors, delays, or service interruptions from the provider can hugely damage operations and trust. So, choosing a managed provider who can deliver a reliable service can be a daunting prospect!

Potential hidden costs

Some providers charge extra for additional services, such as last-minute payroll adjustments or off-cycle payments. When selecting a managed provider, it’s essential their pricing is transparent to avoid costly excesses.

Data privacy concerns

Sensitive employee information must be shared with an external party, which can raise security considerations. While reputable providers will have strict security measures in place, it’s always worth doing your homework to make sure your data is in safe hands!

Employee queries may take longer

Since a company’s payroll is handled externally, resolving employee concerns or queries might not be as quick as with an in-house team.

What’s the best solution?

This is another question we often get asked, and in truth, there’s no blanket answer – it really is dependent on several core factors.

For some businesses, keeping things in-house makes sense, especially if they have a dedicated and experienced team. Others may benefit from a hybrid approach, where an HRIS with integrated payroll software automates key tasks while still allowing some manual oversight. However, for companies looking to save time, reduce errors, and ensure compliance without the hassle of managing payroll internally, outsourcing to a managed provider can be real a game-changer.

The key is to assess your current challenges and priorities, explore different options, and choose a solution that best aligns with your business goals. And if you’re unsure, speaking with a payroll expert can help you weigh the pros and cons before making a decision!

Key factors to consider when choosing between in-house and managed options

1. What’s your organisation’s size, and how complex is it?

• Small businesses with a simple workforce structure may find an in-house operation more manageable and cost-effective.
• Larger businesses, or those with unique operating requirements, may benefit from the expertise and scalability of managed services.

2. What are your compliance requirements?

• If your business operates in a highly regulated industry or has multiple working time patterns, managed payroll may help ensure ongoing compliance.
• If you have a dedicated compliance team in-house, managing payroll internally may still be feasible.

3. Do you have any budget constraints?

• In-house payroll requires investment in dedicated software, staff, and compliance training.
• Managed solutions involve a service fee, but it can eliminate hidden costs related to compliance errors, penalties, and system maintenance.

4. Do you have the necessary internal resources and expertise?

• If your HR or finance team has the necessary expertise, keeping things in-house may be a viable option.
• On the other hand, if your business is finding it too time-consuming or complex, outsourcing to a managed provider can free up resources and reduce stress, too.

5. Can you effectively manage data security and privacy?

• Businesses handling highly confidential employee data may prefer to keep things in-house so confidential information remains within their own infrastructure.
• Managed payroll providers implement strong security protocols, but businesses should vet providers carefully to ensure data protection.

6. The employee experience

• In-house allows for direct employee support, enabling faster response times to pay-related queries.
• A managed solution may introduce some delays in resolving issues, depending on the provider’s response times and processes.

Which option is right for your business?

As we mentioned, there’s no one-size-fits-all solution when it comes to payroll management. The decision between in-house and managed solutions depends on the factors we’ve listed above; however, to summarise:

• In-house payroll is best suited for businesses that want direct control, have simple needs, and have the internal expertise to manage compliance and administrative tasks.
• Managed payroll is ideal for businesses looking to streamline payroll processes, reduce compliance risks, and free up HR and finance teams to focus on strategic tasks.

Ultimately, the right choice comes down to what best supports your business goals, operational efficiency, and employee satisfaction. Whether you keep things in-house or outsource everything, ensuring a smooth, compliant, and efficient process should always be the priority.