Outsource payroll administration or do it yourself?

At first, you might think: this article is not for me. My organisation outsources payroll administration, and that is the best option for us. But is it really?

In this article, we explain the pros and cons of outsourcing payroll administration and managing payroll in-house. We also highlight two important trends in payroll and HR administration. This will help you decide which option truly fits your organisation best.

Why keep payroll administration?

Payroll administration is the process of paying employees their salary accurately and on time. It includes calculating gross and net salary, taking payroll taxes, deductions and expense reimbursements into account. At the same time, you need to make sure the administration complies with applicable pension rules, labour agreements and employment legislation.

In short: payroll is a substantial administrative process. That is exactly why many organisations choose to outsource payroll administration.

Why payroll administration matters

As an employer, you are required to keep proper payroll records. Payroll administration gives tax authorities and other relevant bodies insight into salary payments, deductions and employee compensation.

As an organisation, you generally have the following options:

• You can manage payroll administration yourself.
• You can outsource the entire payroll administration.
• You can choose payrolling, which can also be managed in-house or outsourced.

Are you currently outsourcing payroll administration and considering bringing it in-house? With the right software, long-standing habits can often be made easier, faster and more cost-efficient. But it does require courage. Changing the way your organisation has always worked can be difficult. 

“We have been doing it this way for years, and it works fine, right?”

Maybe. But it is worth comparing your options. There is no universal right or wrong answer. The best choice depends on whether you want to outsource payroll processing or manage it yourself.

Option 1: outsourcing payroll administration

Many companies outsource their complete payroll administration. Often, this is because they do not have enough in-house knowledge of payroll processes and current legislation. In other cases, it is simply due to a lack of time, both for the administration itself and for answering salary-related questions from employees.

Benefits of outsourcing payroll administration

By outsourcing payroll administration, you save time. You do not need to study all the legislation and regulations involved in running payroll. Rules change frequently, and staying up to date takes time and effort.

If you outsource payroll because you do not have enough knowledge in-house, another major benefit is that employees can contact the payroll or administration provider with their questions.

Another advantage of outsourcing payroll administration is that you hand over part of the responsibility. From that point on, the payroll provider is responsible for accurate payroll administration. This reduces the risk of mistakes, corrections or even penalties.

If you work with a good payroll provider, your administration can run like a well-oiled machine. Payslips are delivered neatly every month, and you do not need to check every mutation manually.

Disadvantages of outsourcing payroll administration

“Time is money” is a well-known saying. Still, sometimes it is better to invest time in something than to keep paying someone else to do it. It may sound obvious, but one disadvantage of outsourcing payroll administration is that it costs money.

Payroll providers usually charge a start-up fee to enter employee data and create your online environment. After that, you typically pay a fixed amount per employee per month or per payslip. The more employees you have, the higher the costs.

Outsourcing payroll administration also means giving up part of your control. Payroll administration can provide valuable insights into your organisation. When you outsource the process instead of managing it internally, you are often less closely involved.

The biggest disappointment for many organisations is that outsourcing payroll does not mean you have no payroll work left at all. At least, not if you do not use software or if your HR processes are only partly automated. HR teams still need to check and approve timesheets every month, and remind employees to submit their hours if they have not done so.

Tip: consider purchasing the software yourself and choosing the right implementation or payroll partner to support you.

Option 2: managing payroll administration in-house

In the past, many companies chose outsourcing because it was simply the easiest option. For these organisations, the decision was often made a long time ago, usually when the first employee was hired. There were few alternatives, and payroll administration was a time-consuming task.

But times are changing. Thanks in part to software developments, more and more companies are managing payroll administration themselves. Payroll administration has become easier, faster and often more cost-efficient than outsourcing.

Trends and developments in payroll administration

Before we discuss the advantages and disadvantages of managing payroll in-house, we will highlight two important developments: e-HRM and Employee Self Service.

Trend 1: e-HRM

E-HRM stands for Electronic Human Resource Management. This means using software and internet technology to support HR activities, including payroll administration.

How does this work? By connecting and automating processes, such as payroll administration and accounting. Payroll journal entries, for example, can be processed automatically in the financial administration. Various software providers offer integrated solutions that combine financial administration and payroll administration in one system.

With e-HRM, organisations can digitise HR processes, reduce manual work and improve the flow of information between departments.

Trend 2: Employee Self Service

Employee Self Service, or ESS, is a strong example of process optimisation. ESS is based on the idea that it is more efficient to let employees view and update their own personnel data.

As a result, HR employees spend less time on simple but time-consuming tasks, such as processing address changes, changing bank account details, scheduling leave and submitting expense claims. With software that includes ESS, the HR department can focus more on employees and less on repetitive administration.

By using integrations and connecting software systems, even more processes can be automated. For example, payroll administration can be connected to the accounting system, allowing payroll journal entries to be processed automatically. There are also software providers that offer an all-in-one solution with both financial administration and payroll in one package.

Trend 3: AI in payroll and HR administration

Artificial intelligence is becoming increasingly important in payroll and HR administration. AI can help organisations identify patterns, detect anomalies and reduce manual checks. For example, payroll software can flag unusual salary changes, missing data or inconsistencies before the payroll run is finalised. This helps HR and payroll teams work more accurately and prevent errors earlier in the process.

AI also creates opportunities to make payroll and HR processes more proactive. Instead of only processing data, software can support teams with smart suggestions, automated controls and insights based on historical information. Think of predicting workload, highlighting recurring payroll corrections or helping employees find answers to common HR and salary-related questions faster.

That does not mean AI replaces payroll professionals. Payroll still requires expertise, context and careful decision-making. But AI can take over repetitive checks and support better, faster decisions. In combination with integrated payroll software, AI helps organisations move from manual administration to smarter, data-driven payroll processes.

Benefits of managing payroll administration yourself

Overview, insight, cost savings and flexibility. These are four terms that should sound good to any organisation.

It may be too simple to say that you automatically save money by managing payroll administration yourself with payroll software. A better way to put it is this: you no longer need to spend money on a payroll provider for every payslip or employee. Per employee, this can save a significant amount annually. Of course, you still need to purchase the software and invest time in implementation.

With the right software, you can ultimately save both time and money. Smart software solutions automate time-consuming processes. Take salary calculation, for example. The final salary an employee receives is influenced by many factors. In the past, changes such as expense claims and leave requests were often calculated manually. With payroll software and Employee Self Service, this process can be automated from start to finish: from entering changes to automatic checks during payroll processing.

Software also reduces the chance of errors. Incorrect data is not simply copied over, and salary calculations are automated.

By managing payroll administration internally with the right software, your organisation stays more involved and maintains a better overview than when it only receives a monthly report from an external payroll provider.

Disadvantages of managing payroll administration yourself

It may sound almost too good to be true: saving time and money while maintaining a clear overview. Still, managing payroll administration yourself also has disadvantages. It mainly requires time and knowledge.

Let’s start with the time investment. Keeping payroll administration in-house takes time. You need time to process data, and time to stay up to date with legislation and regulations.

And what about all that automation we mentioned? Does that not save time? Yes, it does. But do not forget that it also takes time to choose the right software. After that, successful implementation requires time as well. Employees need training and practice to use the software properly. Only once everything is running smoothly will you truly start saving time.

Outsource payroll or manage it yourself: how to choose

Whatever decision you make, your payroll approach should ultimately reduce administrative workload. There are good arguments for both outsourcing payroll and managing payroll in-house.

Is your organisation focused on digital transformation? Are you exploring ways to further digitise business processes? Then it is worth considering managing payroll administration yourself. With smart software and Employee Self Service, this has become much easier. Integrations with other software systems can also support the next step in your digitalisation journey.

Are you not focused on digitalisation? Do you not see automation as a priority? Then outsourcing payroll administration may be a better short-term option. It can save time quickly and remove a major administrative task from your organisation. This allows you to focus on your core business.

Our advice: take digitalisation seriously. And look beyond the simple question of outsourcing versus doing payroll yourself. Digitalisation is creating more and more possibilities, not only for payroll administration, but for all administrative processes within your organisation. And those possibilities will only continue to grow.

Want to manage payroll administration yourself?

Every month, millions of employees receive their payslip through AFAS Software. With our software, you can manage payroll administration yourself. Thanks to the integration with HR, built-in support for legislation and regulations, and automatic checks within the payroll process, salary processing becomes much more efficient.

Or download our HR and Payroll brochure.