Key takeaways
- In-house payroll involves managing payroll functions internally, as a core human resources (HR) process, typically using payroll or HRIS software.
- Outsourcing payroll leverages specialized payroll service providers that handle all payroll processes while ensuring legal compliance.
- Managing payroll in-house is suitable for businesses that have the available staffing resources and software budget, but businesses that need extra support should consider outsourcing with a PEO or bookkeeper.
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Pressed for time? Watch our video overview to learn the primary differences between in-house and outsourced payroll in under 3 minutes:
In-house vs outsourced payroll: quick comparison
If you have a trained HR or payroll team, stable headcount, and straightforward taxes, in-house makes more sense as it is cheaper in the long run and gives you more control. If you’re growing fast, operating in multiples states or countries, or lacking payroll expertise, outsourcing provider lowers compliance risk and speeds up your processes.
| In-house payroll | Outsourced payroll | |
|---|---|---|
| Best for | Companies with stable headcount, coverage in single or few states, and existing HR/payroll expertise | Organizations that want outsourced tax filing and compliance without giving up employer-of-record status |
| Setup time | 2–3 months, including time to select software, configure tax codes, onboard employees, train staff | 1–2 months for the provider to handle setup and you to import YTD data, train managers |
| Total cost over time | Lowest ongoing cost if staff is already trained; higher if you must hire payroll specialists | Predictable subscription + per-employee fees; scales with headcount |
| Team skills required | Payroll and tax law knowledge, software admin, reporting and reconciliation | Minimal payroll and tax expertise; need staff for time entry, approvals, exception handling |
| Compliance risk | Higher; depends on internal expertise and monitoring laws across states | Lower; provider files payroll taxes and manages notices |
| Control and customization | Highest customization with workflows, approval routing | Medium customization limited by provider platform features and reporting |
In-house payroll: best for companies with strong HR teams
In-house payroll is best suited for companies with strong human resources teams who have the expertise and knowledge to handle the complex task of processing payroll. HR can effectively manage all aspects of payroll, from calculating salaries to ensuring compliance with payroll tax regulations.
Additionally, by managing payroll in-house and eliminating the need to outsource, you can reduce overhead costs and allocate resources more efficiently.
Pros and cons of in-house payroll
Pros
- Enhanced security and accuracy from software.
- More direct control.
- Efficiency between departments.
Cons
- Cost.
- Software selection and implementation.
- Requires payroll and tax law knowledge.
Accounting vs HR: Who should own payroll?
Make payroll a dedicated HR function with finance as a control partner. HR handles onboarding, status changes, time, and policies; finance owns GL mapping, cash, and audits.
However, very small or contractor-heavy orgs can start with finance owning runs, but introduce HR ownership before multi-state growth, benefits eligibility, or rising garnishments.
Remember: Payroll processes don’t look the same across all companies — it depends on the size, location, and the composition of its workforce. As payroll connects to both accounting and HR, the two departments will need to communicate with each other to ensure accuracy and efficiency. This means both departments need to be privy to the same payroll data.
Choosing the right software for in-house payroll
Due to their size and complexity, many medium and large businesses utilize an HRIS system that includes automated payroll tools. Standalone payroll software tools are an alternative for companies that start with accounting software but need to integrate it with payroll software, or those looking specifically for payroll solutions. In either case, software that can manage payroll in-house is essential to maintain accuracy and compliance.
Rippling: Best overall HRIS and payroll software
Our top recommendation is Rippling because of its ability to process payroll in more than 80 countries, and the option to switch to a professional employer organization (PEO) service if your business has specialized HR and payroll needs.
One of Rippling’s standout features is its ability to offer automated payroll runs for both employees and contractors. Its HR Cloud allows you to manage your entire workforce, from onboarding to employee changes to offboarding. These are some of Rippling’s top features:
- Global payroll.
- Hiring and recruiting.
- Performance management.
- Time and attendance tracking.
- Learning management.
- PEO services.
Pricing starts at $8 per employee monthly, but can quickly add up depending on the services you need. For example, payroll is an add-on to its core pricing.
Gusto: Best payroll software for beginners
For businesses operating in only one state, Gusto’s Simple plan offers a wide range of HR features at just $49 plus $6 per employee monthly. This includes full support payroll with W-2 and 1099 processing, basic hiring and onboarding tools, Gusto-brokered health insurance administration, and integrations with accounting and time tracking software.
If you are a larger company or are operating in multiple states, you can upgrade to Gusto’s Plus plan for $80 plus $12 per employee monthly. You will get everything in the Simple plan, plus full-service multi-state payroll, next-day direct deposit, advanced hiring and onboarding tools, built-in time tracking, and more.
BambooHR: Best HRIS for employee experience
BambooHR offers two HRIS plans, Core and Pro. Each comes with HR data and reporting, hiring and onboarding tools, time off and benefits tracking capabilities, and pre-built integrations. With Pro, you will also get performance management tools, employee recognition and rewards, and an internal employee community dashboard.
If you want payroll, it is an add-on solution that offers different ways to pay employees, like direct deposit, flexible pay schedules, federal and state tax filing, and a specialized payroll support team. However, payroll is limited to the US only, so it may not be suitable for businesses with an international workforce.
While pricing is not transparent, BambooHR does state that businesses with fewer than 25 employees pay a flat monthly rate. And, businesses with more than 25 employees pay a per-employee-per-month rate. This also includes a one-time implementation fee. According to our research, pricing ranges from $100–$180 per month or $5–$9 per employee monthly, depending on the size of your business. Ultimately, you will be required to contact BambooHR for pricing specific to your business needs.
Outsourcing payroll: best for smaller companies that need full HR and payroll services
Enterprise businesses are likely to have in-house staff that take care of payroll, but small businesses often lack the resources to dedicate full-time staff to the function of payroll.
Small businesses therefore often turn to standalone tools like the ones mentioned above or to payroll services offered by a third party. However, large organizations operating in multiple locations and with different currencies may also opt for payroll services for complicated payroll needs.
Pros and cons of outsourcing payroll
Pros
- Potential cost-effectiveness.
- Compliance with federal and state laws.
- Expertise.
- Convenience.
Cons
- Potential incompatibility with time tracking and scheduling software.
- Necessity of manual entry of employee hours worked.
- Security concerns about sensitive employee data, such as Social Security numbers and banking info.
- Less direct control.
Who handles outsourced payroll? PEO vs Bookkeeping services
How you outsource your payroll depends on the type of service you need. A simple bookkeeping provider may be right for your business for payroll-only services. However, if you need someone who handles all HR and payroll functions — replacing the need for internal HR staff — a professional employer organization (PEO) may be the way to go.
Choosing the right provider for outsourcing payroll
Accuracy is key for payroll because employees’ livelihoods and your company’s reputation depend on it. For companies that need to outsource their payroll, finding a provider that offers the needed solutions is key. On top of that, most businesses consider costs when choosing between a professional employer organization (PEO) and a bookkeeper.
Justworks: Best PEO for small businesses
Justworks is focused on providing affordable HR and payroll services to small businesses. As a PEO in a co-employment model, Justworks files payroll taxes under the PEO’s EIN, while you retain ownership of your business and employees.
With Justworks PEO, you get the following features:
- Access to large employer benefits.
- Compliance support — workers’ compensation, tax filing, liability insurance, and unemployment insurance filings.
- Automatic direct deposit payroll.
- Ability to pay employees, vendors, and contractors.
- Integration with accounting software, like QuickBooks.
- Time tracking and integration with payroll.
- HR tools to help you manage paid time off, onboard new employees, and track key business metrics.
Justworks PEO’s Advanced plan is affordable at $79 per month per employee per employee and includes payroll, benefits, HR tools, and compliance. Or, you can upgrade to its Premium plan for $109 per month per employee, which includes everything in the Advanced plan, plus access to healthcare benefits: medical, dental, and vision.
QuickBooks Workforce: Best payroll software with accounting integration
With QuickBooks Workforce (formerly known as QuickBooks Payroll), you get both bookkeeping services and payroll processing. It’s the best of both worlds for accountants that are responsible for managing payroll.
QuickBooks Workforce offers the following features:
- Automated payroll processing
- Same-day direct deposit
- Calculated, filed, and paid payroll taxes
- Tax penalty protection (up to $25,000 in the Elite plan)
- Integration with payroll, time tracking, and accounting
- 24/7 expert support
QuickBooks Workforce has three plans depending on your needs, ranging from $88 to $203 a month, plus a monthly per-employee fee ($6-$8). These plans all include both bookkeeping services and payroll. Plus, you get a 30-day free trial. If you need payroll-only services, prices range from $50 to $134 a month, plus a monthly per-employee fee ($6.50-$12). If you want to go ahead and start right away, without the free trial, you will receive a 50% discount on pricing for the first three months.
In-house payroll vs outsourcing: Which payroll process is right for you?
Ultimately, choosing between in-house payroll vs outsourcing comes down to your company’s specific payroll and HR needs. For businesses without an internal HR department and those heavily growing, outsourcing may be your best option. For those with a strong HR team, keeping payroll in-house can be a cost saver.
In-house payroll vs outsourcing FAQs
Yes, but it requires planning. Mid-year switches need all year-to-date (YTD) wages, tax withholdings, and benefits imported into the new system to avoid duplicate W-2s or compliance errors. The best practice is to cut over right after a pay period closes and run a parallel payroll (processing in both systems once) to confirm accuracy.
Payroll errors aren frustrating and they can trigger fines. Watch out for:
- Multi-state tax rules (especially for remote workers)
- Wage garnishment handling
- Final paycheck timing (varies by state)
- Misclassifying contractors vs employees
- Year-end reporting errors (W-2/1099 corrections)
Outsourcing providers and PEOs usually handle these, but if you manage payroll in-house, you’ll need dedicated staff to monitor changing federal, state, and local laws.
It depends on your size and complexity. For small to midsize companies (typically under 150–200 employees), outsourcing is often cheaper because you avoid hiring payroll specialists and reduce compliance risk. For larger organizations with stable headcount and an experienced payroll team, in-house can be more cost-effective long-term, especially when software is already in place.
