Some of the possible benefits of payroll outsourcing include company growth, which allows for cost reduction and updated technology. If the payroll is outsourced, this growth can be readily assimilated without a large investment in equipment or staff. Payrolling is usually the first service that companies decide to outsource. The cost is clearly quantifiable and predictable, meaning no money will be lost through error.

Using a payroll processing service typically costs less than hiring an additional employee to handle payroll. Companies can gain access to payroll specialists dedicated to ensuring they meet their statutory obligations. Enlisting the help of a payroll outsourcing service can reduce a companies risk of legal errors, thus leading to legal protection for the business. Many business owners underestimate the cost of processing payroll internally by failing to account for all hours spent and resources allocated to pay employees and maintain payroll paperwork. The capital freed up by outsourcing can be invested more profitably elsewhere in the business.

Payroll outsourcing also allows for the latest technology in usage. Outsourcing payroll allows an organization access to the best solutions and latest technology without the need for software upgrades or a direct investment. Payroll outsourcing gives companies a competitive edge. Businesses which organize both internal and external resources are often better equipped to react to changing circumstances or to explore new market opportunities. Concentrating on core activities, they are usually more flexible and responsive, giving them a competitive edge.

Some of the other advantages of outsourcing payroll include timesavings. Companies who use payroll outsourcing services have less paperwork to do and need to only spend a few hours on payroll each year. This allows a company to focus on their business more. Calculating federal, state, and local employment taxes and filing payroll related tax paperwork can be tedious, but if done incorrectly, a company may face penalties and even interest on money owed since the mistake was made. Outsourcing payroll does away with the risk of many of these costs and hassles. By outsourcing payroll, the provider calculates payroll taxes based on its expertise and tracking of regulation changes. Also, monthly or quarterly employment tax reports are managed by the payroll service, ensuring they are submitted correctly and on time. Additionally, payroll providers may assume penalties that come as a result of incorrect tax calculations and end-of-year paperwork, such as W-2s and 1099s , are handled directly by the payroll provider, as well.