The heart of a business is its workforce. And the most crucial factor that makes employees feel they are well taken cared of is when payroll is prompt and efficient. Any inconsistencies in this process are detrimental to a company's reputation and will most likely cause difficulties in attracting or hiring good quality workers in the future. 

As crucial as it is, managing payroll can be challenging, even for experienced professionals. And as a business expands to new territories, the payroll process must enable the company to prepare for future needs. So, how do you know when it's the right time to invest in outsourced payroll?

Each choice brings its own advantages. Carefully consider your situation before committing to either of the options.

In-house Payroll vs. Outsourced Payroll

In-house Payroll

This is usually the common option, especially for small businesses, as it saves some money, but you are also fully responsible for the process's upkeep.

It is important to remember that payroll goes beyond just paying out your employees. You must also handle employees' tax status, garnishments if requested by authorities, legal documentation, and the security of your workers' sensitive information. Experienced business owners or leaders may feel confident enough to handle these on their own, but most small businesses either hire an HR professional or invest in a third-party. 

Outsourced Payroll

Small businesses tend to be hesitant to invest in outsourced payroll, mainly because it costs more. However, it provides more advantages than drawbacks in the long-term. The main advantages are the guarantee of compliance with local laws, and you can ensure the payment of your employees is made promptly and accurately. Outsourcing payroll also creates the opportunity for your business to grow as this is one of the fundamentals of a company, especially when hiring international workers.

With sensitive data from employees involved, make sure to carefully evaluate potential partners before making the deal. You can also do further inquiry with support staff before deciding to sign up, so you can check on the quality of customer service you and your employees will receive.

Common payroll scenarios and the best advice for each

You are the best person who knows your specific situation and needs, so you are the best person to decide on whether in-house or outsourced payroll is the best option for your business at the moment. To start, consider the following situations and which of these are most relevant for you.

Paying your own full-time local team members

The simplest and most common situation for businesses with a small number of employees. As long as you are confident that you consistently file your paperwork correctly and you know how to manage tax requirements, in-house payroll is appropriate for you.  

Paying your full-time team members and a few contractors

When contractors are involved, things get a bit tricky. Legally, you must be cautious about ensuring that you do not accidentally place restrictions on your contractors that would conflict with their actual status in the company. For example, setting specific or fixed work hours might entitle contractors to certain protections. For as long as you understand the process of managing contractors, you can still settle for in-house payroll. Just make sure you pay those invoices promptly. You can read more about 'false self-employment' here.

Managing an extensive network of contract workers

While many large companies still keep their payroll in-house, it may be a different case for small businesses dealing with several contractor partnerships. Contractor invoices can quickly get complicated, causing some difficulty in tracking payments. It may be wiser to opt for outsourced payroll, especially when there are dramatic changes in payroll from one month to the next.


Hiring international workers as full-time employees 

When hiring full-time employees from other countries, you will need not only an outsourced payroll provider, but also an employer of record, or EOR. A business can only legally hire an employee in another country if it owns and operates a local legal entity in the country where that employee resides in. An EOR specializing in small business services can help you hire and pay international employees while being fully compliant with local labor laws. 

Hiring international workers as contractors

International workers can also be hired as contractors, and sometimes small businesses choose this arrangement to avoid the complexities of formal global employment. However, this strategy brings its own risks of misclassification. Hiring only a few international contractors may bypass the in-house payroll process by coursing billing through a third-party platform such as PayPal. But, you must still be cautious to avoid unintentionally breaking labor laws where your contractors are based in.   

As you've read, choosing the type of payroll that your business needs requires careful consideration. It is a matter of knowing your capabilities and weighing the pros and cons that would be most beneficial for both your business and employees.

Whichever option you choose, always remember to keep your workers' needs a top priority because a happy workforce makes for a healthy business.

Learn more about Rivermate if you are considering outsourced payroll and looking into expanding to a global team.

Finding the blog useful? Check out our free guide to learn how you can streamline HR and payroll processes to ease your workload and spend less time on administrative operations.