Top 10 pros and cons of outsourcing payroll

Why should business owners consider outsourcing payroll?

Managing payroll in-house can be time-consuming and expensive; payroll outsourcing makes the processing more affordable. In addition, the slightest payroll error can damage your company's reputation and get you in trouble with the law; for this reason, some businesses choose to outsource payroll processing so they can focus on other aspects of their business that are more important. You can also stay on top of regulations by outsourcing payroll to an experienced company. However, before outsourcing payroll administration to a third party, you should evaluate its advantages and disadvantages.

Payroll errors are on the rise.

Nearly one in five Australian businesses (19%) suspect they may be underpaying staff, and 17% are unsure whether they are paying employees correctly, according to Yellow Canary’s 2025 State of Payroll Compliance research.

Underpayment is widespread across and affects organisations of every size—from major corporates to small and medium businesses. Many cases are self‑reported, while others involve serious breaches uncovered through FWO investigations, highlighting both unintentional payroll errors and blatant failures to meet employee entitlements.

This rise in enforcement activity and the growing volume of recoveries underline a simple reality: payroll compliance is becoming more complex, and the risks of getting it wrong are increasing every year.

Pros and Cons of Outsourcing Payroll.

Any business can benefit from outsourcing payroll processing, but outsourcing also has risks that you should consider. This blog outlines the pros and cons of outsourcing payroll.

Pros

1. Timesaving

Managing payroll in-house requires managing a large amount of data that varies from employee to employee. To ensure 100% accuracy, calculating deductions and net pay required dedicated time and care. Outsourcing payroll to a specialist payroll company allows you to spend more time on other core business activities.

Outsourcing the administration of payroll processing means that you can review your workforce from a perspective of labour costs, projects and pay items. Most modern payroll solutions provide comprehensive reporting and analytics to help you understand the trends, and opportunities and make decisions around cost control, recruitment and remuneration.

2. Compliance and timely reporting

All businesses endeavour to avoid fines from regulatory bodies but keeping on top of all the updates and changes is challenging work. There is a lot to keep track of and report to the regulatory bodies from the changes surrounding STP Phase 2,  Fair Work Modern Awards, JobMaker and Super Stapling.

A payroll expert is necessary for a business to ensure compliance with payroll regulations, employee payments, and timely reporting. Outsourcing payroll eliminates the need for in-house experts and ensures compliance and accuracy.

3. Cost saving

By outsourcing to a proficient payroll provider, you can reduce costs. Payroll processing in-house, for example, can be costly as it requires you to hire a payroll expert and the necessary tools and technology to process payroll. However, outsourcing payroll processing can save you money since payroll outsourcing costs are predictable. You may also be able to save on additional features offered by the payroll service provider. Outsourced payroll solutions have a more holistic approach to workforce management and include award interpretation, time and attendance, rostering and scheduling, and employee self-service.

4. Peace of Mind

An outsourced payroll service provider ensures they are up to date with the complexities of taxes and government regulations. Outsourced payroll provides experts in the field who manage your payroll activities - ensure compliance, calculate your taxes on time, and pay your employees the right amount at the right time. In addition to saving time and hassle, outsourcing payroll gives you peace of mind by ensuring that your payroll processing is always taken care of, and you are not held short due to staff shortages or lack of expertise.

5. Business growth and connectivity 

Cloud payroll solutions like Access Definitiv Evo offer data and analytics to review labour costs, take control and forecast for future growth and strategy. Data-rich payroll engines can also connect with your in-house systems like ERP or financial software to help you manage costs and forecast for the future. Outsourcing payroll solutions also cater for business growth taking care of more employees, contractors, and casuals and most are based on pay per use so making outsourcing cost-effective and reliable.

Cons

Payroll outsourcing also has its drawbacks, so if you are looking at outsourcing your payroll processing, you should be aware of the downside to making an informed decision.

1. Service Provider

Outsourcing payroll can introduce compliance and operational risks if the provider isn’t the right fit for your business. Every organisation has unique award structures, governance requirements, reporting needs, and risk tolerances—so selecting a provider without thorough due diligence may result in gaps in compliance, data security, or process accuracy. It’s essential to validate a provider’s qualifications, controls, audit practices, and industry experience, and to confirm they can meet your specific legislative and organisational obligations. Taking the time to compare providers ensures you select a partner equipped to support—and not compromise—your compliance framework.

2. Shared control your data

Outsourcing payroll to a service provider means you agree to the terms and conditions set by the provider. Ensure you know where and how your data is stored and used, as payroll data is sensitive and must always be kept secure. Many cloud payroll software solutions offer multi-level authorisation, allowing you to view, edit, and share data.

3. Service Agreements

The outsourcing payroll service provider may fail to respond immediately if a payroll mistake occurs, damaging your company's reputation. Ensure you know the service level agreements.

4. Hidden costs

Some outsourced payroll service providers offer services beyond your requirements, this means you are paying for services you do not need or may not use. Aside from that, not every service provider offers customised rates and services dependent on business size or requirements. Make sure you research and pick an outsourced payroll package to suit your budget and meet your business requirements. On the other hand, you may get some cost savings by using the full-service offering if the additional services cover your business requirements.

5. Data access

Outsourcing payroll can limit your direct access to critical employee data, potentially affecting your ability to meet audit, reporting, and legislative requirements. If a provider uses closed or restrictive systems, you may not have timely or complete visibility over records needed for Fair Work compliance, internal reviews, or regulatory reporting. Ensuring you understand how data is stored, accessed, and controlled is essential to maintaining compliance oversight.

Conclusion

Your business can benefit from outsourcing payroll if you consider these pros and cons. Outsourcing comes with many benefits for your business and can also streamline the workforce management of your business. Overall, outsourcing payroll processing for your business is a safe way to stay compliant and ensure your employees are paid. However, before engaging in outsourcing payroll processing, ensure you research and consider the pros and cons for your business to make the right decision.

Download our eBook Outsourced Payroll vs In-house Payroll for a detailed comparison when considering outsourcing payroll or keeping it in-house.