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Payroll

Comprehensive Guide to Payroll Outsourcing

Running payroll isn’t just about paying people on time. For Australian businesses, it also means navigating award rules, keeping up with Fair Work changes, managing super, and lodging STP reports β€” all while ensuring accuracy and compliance.  

In this article, we'll explore what outsourcing payroll really means for Australian businesses, compare the pros and cons of outsourced vs. in-house, break down costs, along with a practical framework for selecting and implementing the right payroll solution for your business.  

7 minutes

Posted 07/10/2025

The reality? Payroll has become a department of its own due to its demanding nature. That’s why more businesses are turning to outsourced payroll services, with 51.6% of them reporting they are satisfied or very satisfied with their provider.Β 

What is payroll outsourcing? 

Payroll outsourcing is when a business partners with an external provider to manage its payroll functions. This can include calculating wages, managing tax and superannuation, generating payslips, processing payments, and ensuring compliance with Fair Work and ATO requirements. Rather than handling these tasks in-house, businesses hand them off to a specialist with the systems and expertise to do it accurately and efficiently.

 

At its core, payroll outsourcing involves shifting payroll from an internal function to an externally managed service. The provider takes responsibility for delivering the end-to-end payroll process, using dedicated technology, automation, and compliance knowledge on behalf of the business. 

 

Brief overview of the payroll process 

Payroll processing follows a structured cycle that repeats each pay period, which ensures employees are paid accurately and on time. It typically includes tracking hours worked, calculating wages and entitlements, applying tax and superannuation, distributing payments, and submitting reports to the ATO. While the process is routine, each step requires precision, system coordination, and up-to-date compliance. 

 

πŸ€” Why businesses outsource payroll 

Every business reaches a point where managing payroll internally becomes more of a burden than a benefit. Whether it's the mounting complexity of compliance, the time drain on valuable resources, or the risk of costly errors, organisations across Australia are recognising that specialist expertise often delivers better results.

Three key drivers push businesses toward outsourcing: 

β€’ Complexity overload – Modern Awards, EBAs, and constant legislative changes

β€’ Resource drain β€“ Internal teams spending days on payroll instead of strategic work

β€’ Compliance risk – Penalties for errors can reach thousands per breach 

 

πŸ“ˆ Current state of payroll outsourcing industry  

The Australian payroll outsourcing market continues to expand, here’s a look at what’s happening in the industry:

β€’ 40.2% of small businesses now outsource payroll operations

β€’ 41.4% of medium businesses use external payroll providers

β€’ All employers are now required to comply with STP Phase 2 expanded reporting

β€’ Criminal penalties from 2025 for intentional underpayment - up to 10 years imprisonment

 

πŸ‘‰ Who should consider using this guide 

β€’ Small business owners facing payroll complexity with limited resources

β€’ HR managers seeking operational efficiency improvements

β€’ CFOs evaluating cost-effective payroll solutions

β€’ Operations managers handling workforce expansion

β€’ Payroll managers assessing service alternatives 

 

🏒 Business size considerations 

This guide provides value regardless of organisation size, here’s how: 

β€’ Small businesses (under 20 employees) – Establishing compliant payroll processes from the beginning

β€’ Medium businesses (20-199 employees) – Managing increased complexity and multi-state operations

β€’ Large businesses (200+ employees) β€“ Optimising costs and improving efficiency 

If payroll processing consumes excessive time, causes compliance concerns, or limits your ability to scale, this guide will help you evaluate whether outsourcing aligns with your business needs. 

Understanding payroll: The foundation 

Modern payroll encompasses far more than simply paying employees. It includes managing award rates, penalty loadings, leave accruals, and ensuring compliance with Enterprise Bargaining Agreements (EBAs). 

β€’ Salary and wage calculations – Base pay, overtime, shift penalties, and allowances according to Modern Awards and EBAs.

β€’ Tax withholdings and deductions – PAYG withholding, HELP repayments, child support, and salary sacrifice arrangements. 

β€’ Benefits administration – Leave entitlements, superannuation contributions, and salary packaging options. 

β€’ Time and attendance tracking – Recording hours worked, managing rosters, and calculating time-based entitlements. 

β€’ Compliance and reporting requirements – Single Touch Payroll submissions, payment summaries, and Fair Work documentation. 

 

πŸ‘ŽCommon payroll challenges 

Modern payroll management involves navigating multiple challenges that can overwhelm internal teams, such as:  

β€’ Complexity of tax regulations – Managing PAYG, state payroll taxes, FBT, and super across multiple jurisdictions requires constant attention to detail. 

β€’ Compliance risks and penalties – Fair Work and ATO penalties can reach tens of thousands per breach, with underpayment claims potentially spanning years. 

β€’ Time-consuming administrative tasks – Weekly payroll processing, timesheet reconciliation, and employee queries consume hours that could focus on core business. 

β€’ Technology and system requirements – Keeping software updated for legislative changes and maintaining Single Touch Payroll compliance demands ongoing investment. 

Outsourced vs In-House Payroll: Making the right choice 

The big question: to keep managing payroll internally or outsource specialists? Both paths have clear advantages, but the right choice depends on respective business needs and circumstances. 

In-house payroll management 

In-house payroll means handling everything internally – from calculating wages to submitting tax reports. The company employs payroll staff, maintains software, and takes full responsibility for compliance. It's essentially running a complete payroll department within the organisation. 

βœ… Pros: 

β€’ Control – Direct oversight of all payroll processes and immediate data access

β€’ Customisation – Tailor processes exactly to business needs

β€’ Data security – Sensitive information stays within the organisation 

 

❌ Cons: 

β€’ Resource intensive – Requires dedicated staff with specialised payroll knowledge

β€’ Compliance risks – Teams must keep up with constant legislative changes

β€’ Technology costs – Software licenses, updates, and IT infrastructure add up

β€’ Infrastructure needs – Backup systems, training, and ongoing development required 

 

Outsourced payroll management 

Outsourcing means hiring an external company to handle payroll. The business provides employee hours and information. Access Payroll Outsourcing can manage all or part of your payroll process, from calculations, tax obligations, superannuation, and compliance – bringing economies of scale and specialised expertise. 

βœ… Pros: 

β€’ Expertise – Access to payroll specialists who live and breathe compliance

β€’ Cost savings – No need for in-house payroll staff or expensive software

β€’ Compliance assurance – Provider takes responsibility for staying current

β€’ Scalability – Easily handle growth or seasonal workforce changes 

 

❌ Cons: 

β€’ Less control – Working to external timelines and processes

β€’ Provider dependency – Service quality varies between providers

β€’ Communication gaps – Less direct contact with payroll processing 

Need help deciding between outsourced and in-house payroll? Download our free eBook for detailed side-by-side comparisons, and decision frameworks tailored to your business size and industry. 

Decision framework: In-house or outsourced? 

Choosing between in-house payroll and outsourcing isn’t one-size-fits-all. The right approach depends on how your business operates today and where it’s heading.Β 

πŸ’Ό Business size considerationsΒ 

  • For small businesses

    Outsourcing is often the most cost-effective option, especially when internal payroll resources are limited and compliance requirements are still unfamiliar.

  • For mid-sized businesses

    A hybrid approach works well β€” maintaining control over strategy while offloading admin-heavy tasks to a specialist provider.

  • For larger organisations

    Combining internal teams with outsourced support can help manage complexity, scale, and compliance across multiple entities or locations.

🏒 Industry-specific factors 

  • Retail, hospitality, construction, and healthcare

    Complex awards, shift-based rosters, and seasonal work make these industries strong candidates for outsourcing or SaaS platforms with built-in compliance tools.Β 

  • Professional services and tech

    In these sectors, payroll structures are often simpler, which makes in-house management a viable option β€” particularly when supported by flexible and modern software.Β 

πŸš€ Growth stage implications Β 

  • Scaling businesses

    Outsourcing provides consistency, automation, and compliance support as headcount grows and complexity increases.Β 

  • Established organisations

    Switching to a managed payroll service can reduce costs, streamline operations, and free up internal resources for more strategic priorities.Β 

How payroll outsourcing works: The complete process 

Many businesses hesitate to outsource because they lack clarity on what the transition involves or how day-to-day operations will change. Understanding the practical process helps set realistic expectations and ensures smooth implementation.  
 
Here's an overview of the complete process:

πŸ“‹ Initial setup and onboarding 

  • Data migration process 

  • System integration requirements 

  • Employee information transfer 

  • Timeline expectations 

βš™οΈ Ongoing payroll operations 

  • Payroll cycle management 

  • Data submission processes 

  • Approval workflows 

  • Employee self-service portals 

πŸ“Š Reporting and analytics 

  • Standard reports provided 

  • Custom reporting options 

  • Real-time access to payroll data 

πŸ“… Year-end processing 

  • Tax form preparation (payment summaries, STP finalisation) 

  • Annual compliance reporting 

  • Audit support 

Types of payroll outsourcing services 

βœ… Full-service payroll outsourcingΒ 

When businesses choose full-service outsourcing, the provider becomes their complete payroll department. They handle everything from wage calculations and payment processing to tax filing and compliance, while the business simply provides employee data and approvals

  • Complete payroll processingΒ 

  • Tax filing and complianceΒ 

  • Benefits administrationΒ 

  • HR support servicesΒ 

🀝 Co-sourced payroll services 

Co-sourcing creates a partnership where responsibilities are shared between the business and provider. The company might keep control of time tracking and initial data entry, while the provider manages complex calculations, tax filing, and compliance requirements.Β 

  • Shared responsibility modelΒ 

  • Client retains some controlΒ 

  • Hybrid approach benefitsΒ 

Ideal for companies wanting oversight while outsourcing complex elements.Β 

Β 

☁️ Software-as-a-Service (SaaS) solutions 

Modern SaaS platforms like Access Definitiv Evo offer control while leveraging enterprise-grade technology. Its Award Engine automatically interprets Modern Awards and EBAs, calculating penalties and overtime without manual intervention. Key capabilities include:

  • Award Engine automation – Visual tree structure for complex award interpretation
  • Real-time compliance – Single Touch Payroll and automatic legislative updates
  • Flexible deployment – Cloud-based access with mobile apps for employees and managers
  • Scalable pricing – Pay for what you need as your business grows

Β 

🏒 Professional employer organisation (PEO) 

Under a PEO arrangement, the provider becomes a co-employer for tax and compliance purposes. While businesses maintain operational control of their workforce, the PEO handles all HR administration, payroll processing, and shares legal responsibility for employment compliance.Β 

  • Co-employment modelΒ 

  • Comprehensive HR servicesΒ 

  • Risk sharing arrangementsΒ 

Β 

🎯 Specialised services 

Specialised services address specific payroll complexities that don't fit standard models. These include managing multi-state operations with varying tax laws, international payroll with currency conversions, or industry-specific requirements for sectors like construction or healthcare.Β 

  • Multi-state payroll processingΒ 

  • International payroll managementΒ 

  • Industry-specific solutionsΒ 

  • Contractor payment processingΒ 

Benefits of payroll outsourcing 

The benefits of payroll outsourcing extend well beyond simple time savings. Here's what businesses typically gain from making the switch. 

πŸ’° Cost savings 

Payroll outsourcing is no longer limited to large corporates. In fact, according to the 2024 Australian Payroll Survey, 40.2% of Australian employers with fewer than 100 employees now outsource payroll β€” a sign that even small to mid-sized businesses are prioritising accuracy, compliance, and cost control. 

By outsourcing, businesses eliminate multiple hidden costs: 

βœ“ Reduced labour costs 
βœ“ Lower technology investments 
βœ“ Economies of scale 
βœ“ Predictable pricing models 

βœ… Compliance and risk management 

Providers assume responsibility for staying current with Australian employment law and bear liability for compliance errors. 35% of businesses report being satisfied with their current payroll technology, this highlights the value of outsourcing to providers with up-to-date systems and compliance tools. 

βœ“ Expert knowledge of regulations 
 βœ“ Reduced penalty risks 
 βœ“ Automatic updates for law changes 
 βœ“ Audit protection services 

 
⏰ Time and resource efficiency 

Teams reclaim hours usually lost on payroll processing and compliance to focus on activities that drive business growth. The time savings translate into: 

βœ“ Streamlined processes – Simplified workflows and reduced manual tasks  
βœ“ Focus on core business activities – More time for strategic initiatives 
 βœ“ Reduced administrative burden – Less paperwork and routine processing 

πŸš€ Technology and innovation 

Outsourcing providers continuously invest in the latest payroll technology, security updates, and compliance features that would be costly for individual businesses to maintain. Through outsourcing, businesses gain access to: 

βœ“ Advanced systems – Enterprise-level technology without the price tag  
βœ“ Regular software updates – Automatic upgrades for new features and compliance  
βœ“ Integration capabilities – Seamless connections with your existing HR and accounting systems  
βœ“ Mobile accessibility – Manage approvals and access reports from anywhere 
 

πŸ“ˆ Scalability and flexibility 

Business growth shouldn't be limited by payroll capacity. Whether you're hiring seasonal workers, expanding interstate, or experiencing rapid growth, outsourced providers scale with your business’ needs without requiring system overhauls or additional staff.  

βœ“ Easy scaling for growth – Add employees without infrastructure changes  
βœ“ Seasonal workforce management – Handle peak periods without permanent overhead
βœ“ Geographic expansion support – Multi-state compliance without local expertise 

Potential drawbacks and considerations 

While outsourcing delivers substantial benefits, understanding potential challenges ensures you make an informed decision and select the right provider. 

πŸ”’ Reduced control 

When you outsource payroll, you're entrusting a critical business function to an external provider. This shift means working within their systems and timelines rather than having immediate access to make changes. 

  • Reduced oversight of processes – Lack of direct visibility into day-to-day operations 
  • Dependency on external provider – Must follow their schedules and procedures 
  • Limited customisation options – Unique pay arrangements may not fit standard models 

πŸ›‘οΈ Data security concerns 

Employee payroll data includes some of your most sensitive information. When outsourcing, this data resides in external systems beyond your direct control. 

  • Sensitive information sharing – Tax file numbers, bank details, and salaries in third-party hands 
  • Cybersecurity considerations – Despite strong security measures, external storage introduces risk 
  • Data breach risks and liability – Understanding who bears responsibility if breaches occur 

πŸ’¬ Communication challenges 

Adding an intermediary between your HR team and payroll processing can create gaps in communication and responsiveness. 

  • Potential for miscommunication – Instructions may be misinterpreted without direct oversight 
  • Response time variations – Queries might not receive immediate answers during peak periods 
  • Less direct employee interaction – Employees cannot simply walk to payroll with questions 


πŸ’Έ Hidden costs 

The advertised per-payslip price rarely tells the full story. Additional charges can significantly impact your total investment. 

  • Setup and implementation fees – Initial configuration can cost thousands 
  • Additional service charges – Year-end processing, custom reports, award interpretations 
  • Contract termination costs – Exit fees and data extraction charges 

⚑ Vendor dependency risk 

Relying on an external provider introduces business continuity considerations that need careful evaluation. 

  • Provider stability concerns – What happens if they experience financial difficulties? 
  • Switching costs and complexity – Changing providers requires significant time and resources 

Payroll outsourcing costs: Understanding your investment 

πŸ’³ Pricing modelsΒ 

Payroll providers typically offer several pricing structures. The most common is per-employee-per-month (PEPM) pricing, though some providers offer percentage-based or flat-rate models for specific business sizes. Here are the main pricing structures you'll encounter:Β 

  • Per-employee pricing (PEPM)Β 

  • Base fee plus per-employee chargesΒ 

  • Percentage of payroll modelsΒ 

  • Flat-rate pricing optionsΒ 

πŸ“Š Cost factorsΒ 

Your final cost depends on multiple variables beyond employee headcount. Payroll frequency significantly impacts pricing - weekly payrolls require more processing than monthly ones. Geographic spread matters too, as multi-state operations involve different tax jurisdictions. Key factors that influence your investment include:Β 

  • Number of employeesΒ 

  • Payroll frequencyΒ 

  • Service level complexityΒ 

  • Geographic coverageΒ 

  • Integration requirementsΒ 
    Β 

πŸ“ˆ Cost comparison frameworkΒ 

To accurately evaluate outsourcing costs, you need to compare your total current expenses against provider quotes. This means calculating not just visible costs like salaries but also hidden expenses like compliance risks and opportunity costs. Use this framework for your analysis:Β 

  • In-house vs outsourced cost analysisΒ 

  • Total cost of ownership calculationsΒ 

  • ROI assessment methodsΒ 

πŸ’° Hidden and additional costsΒ 

Beyond base pricing, various charges can significantly impact your total investment. These often aren't mentioned in initial quotes but can add substantial costs over time. Watch for these common additional charges:Β 

  • Implementation and setup feesΒ 

  • Year-end processing chargesΒ 

  • Custom reporting feesΒ 

  • Integration and API costsΒ 

  • Termination and switching costsΒ 

🎯 Cost optimisation strategies 

Smart approaches can help manage and reduce your outsourcing investment without sacrificing service quality. Consider these strategies when negotiating your contract:Β 

  • Service bundling opportunitiesΒ 

  • Contract negotiation tipsΒ 

  • Volume discount considerationsΒ 

πŸ” How to choose the right payroll outsourcing provider 

1. Assess your business needs 

Before evaluating providers, clearly define what your business needs from a payroll service. Consider your current pain points, growth trajectory, and specific industry requirements.  

Key areas to consider: 

βœ“ Current payroll requirements analysis  
βœ“ Future growth projections  
βœ“ Industry-specific needs  
βœ“ Integration requirements 

2. Evaluate provider capabilities 

Not all payroll providers are created equal. Focus on providers with proven experience in your industry and the capability to handle Australian compliance complexities. What to look for in a provider: 

βœ“ Service offerings and capabilities  
βœ“ Technology platform assessment  
βœ“ Compliance expertise and track record  
βœ“ Customer service quality  
βœ“ Pricing transparency  
βœ“ Security measures and certifications 

3. Conduct due diligence 

Thorough vetting prevents costly mistakes. Check references from businesses similar to yours and verify all compliance certifications. Essential checks to complete: 

βœ“ Reference checking and testimonials  
βœ“ Financial stability assessment  
βœ“ Compliance certifications verification  
βœ“ Data security audit  
βœ“ Service level agreement review 

4. Request detailed proposals 

Ask shortlisted providers for formal proposals outlining their services, pricing, and capabilities. This ensures you're comparing providers on equal terms and can test their understanding of your specific needs. What to include in your request: 

βœ“ Detailed service requirements  
βœ“ Specific payroll scenarios to price  
βœ“ Evaluation criteria and timeline 

5. Negotiate your contract 

The initial contract sets the foundation for your entire relationship. Pay particular attention to service levels, liability clauses, and exit terms. Critical elements to negotiate: 

βœ“ Key contract terms and clauses  
βœ“ Service level agreements (SLAs)  
βœ“ Data ownership and portability  
βœ“ Termination clauses and procedures  
βœ“ Liability and indemnification 

Implementation and transition process 

πŸ“‹ Pre-implementation planningΒ 

Setting the foundation for successful transition requires thorough preparation. This phase typically takes 2-3 weeks and determines the smoothness of your entire implementation. Key planning elements:Β 

βœ“ Project timeline development Β 
βœ“ Data preparation requirementsΒ 
βœ“ System integration planningΒ 
βœ“ Communication strategyΒ 

βš™οΈ Implementation stepsΒ 

The actual implementation follows a structured process to minimise disruption. Each step builds on the previous one, ensuring nothing falls through the cracks.Β Core process includes:Β 

βœ“ Data migration process Β 
βœ“ System testing and validation Β 
βœ“ Employee training and communication Β 
βœ“ Parallel processing periodΒ 

βœ… Go-live and post-implementationΒ 

The first few payroll cycles after go-live are critical for identifying and resolving issues. Most providers offer enhanced support during this period. Post-implementation priorities:Β 

βœ“ First payroll run monitoring Β 
βœ“ Issue resolution procedures Β 
βœ“ Performance monitoring Β 
βœ“ Continuous improvement processesΒ 

Industry-specific considerations 

Different businesses face unique payroll challenges based on their size, complexity, and industry. Understanding these specific requirements helps you choose a provider with the right expertise and ensures they can handle your particular needs effectively. 

πŸ’Ό Small business considerations 

Small businesses face unique challenges with limited HR resources and tighter budgets. Outsourcing often makes more financial sense than maintaining in-house expertise for complex award interpretation. What to look for: 

βœ“ Startup-friendly providers – Flexible pricing and minimal setup fees  
βœ“ Growth accommodation – Seamless scaling as your workforce expands  
βœ“ Budget-conscious solutions – Transparent pricing without hidden fees 

🏒 Enterprise-level requirements 

Large organisations need providers capable of handling complexity on a scale. Multi-entity structures, various awards, and interstate operations require sophisticated solutions. Essential capabilities: 

βœ“ Complex organisational structures – Multiple entities, divisions, and cost centres  
βœ“ Multi-location considerations – Different state taxes and regional requirements  
βœ“ Advanced reporting needs – Custom dashboards and board-ready reports 
 

πŸ”§ Industry-specific needs 

Certain industries have unique payroll complexities that standard providers may struggle to handle. Ensure your chosen provider has experience in your sector. Industries requiring specialised expertise include: 

βœ“ Healthcare and benefits-heavy industries – Complex shift patterns and multiple awards  
βœ“ Seasonal businesses – Rapid changes in schedules, temporary workers 
βœ“ Union environments – EBA compliance and collective agreements  
βœ“ Government contractors – Security clearances and compliance reporting 

Conclusion 

Payroll outsourcing offers Australian businesses a strategic opportunity to reduce costs, ensure compliance, and refocus resources on core activities. Whether you choose full outsourcing, co-sourcing, or cloud-based solutions, the key is selecting a provider that understands your unique needs and the Australian regulatory landscape. 

Payroll complexity isn't going awayβ€”but how you manage it can change everything 

Whether you're navigating Modern Awards, multi-state operations, or the new penalties for underpayment, the challenges keep mounting. What matters is having a partner who turns payroll from a compliance burden into a strategic advantage. 

 

Is your current payroll approach ready for what's next? See our solution in action or speak with a payroll specialistβ€”discover how Access Payroll Outsourcing transforms complexity into clarity, ensuring compliance while freeing your team to drive business growth. 
 
Download our Payroll Outsourcing Guide for detailed cost comparisons, compliance checklists, and strategies so you can make an informed decision.