Payroll processing is a complex yet essential task for virtually every business. As key operational and compliance requirements continue to evolve, many organisations find it strategic to outsource payroll functions to qualified third-party providers. However, with a no. of third-party payroll service models now available – from bookkeepers to national payroll companies – determining the right partner that meets your needs can be a major challenge.
In this article, we shall explore the top third-party payroll service models, including bookkeepers, CPAs, PEOs, software providers, and local/national partners.
Top Third-Party Payroll Service Models
When it comes to choosing among the right third-party payroll service models for your business, several options are available, each with its own advantages and considerations. Understanding the various service models can help you make an informed decision that aligns with your company’s specific needs and goals.
Bookkeepers
Bookkeepers typically work independently and take on small businesses to assist with financial record keeping and basic payroll support. Benefits of bookkeeping services include:
- Cost Savings – Affordable part-time assistance, hourly fees structured to business size.
- Personalised Service – Ability to develop relationships with dedicated providers.
- Understanding of Fundamentals – Well-versed in foundational accounting and bookkeeping.
Potential drawbacks of these third-party payroll service models are:
- Limited Payroll Expertise – Lack depth on ever-evolving payroll compliance demands.
- Reliance on External Software – Must integrate third-party systems for payroll activities.
- Lack of Comprehensive Services – Cannot support needs expanding beyond general accounting.
CPA Firms
Certified public accounting firms are among the third-party payroll service models that offer advanced financial oversight including payroll processing:
- Tax Regulation Expertise – CPAs keep current on code to ensure compliance.
- Integrated Management – Consolidate finance/accounting needs under one provider.
- Strategic Business Insights – Advise on cash flow, expansion financing and more.
However, using CPA firms for payroll can also pose challenges:
- Higher Costs – Fees typically exceed dedicated payroll providers.
- Mixed Attention – Broader finance goals may override payroll support.
PEOs
Professional employer organisations are among the third-party payroll service models that become the employer of record to offer full outsourcing:
- Economies of Scale – Competitive health/retirement plans under a larger group.
- Compliance Covered – Stay current with central/state regulations.
- HR Functions Bundled – Recruiting, onboarding, training etc.
But PEO arrangements also lead to dependence on an outside provider for critical organisational needs:
- Loss of Control – Provider co-manages workforce, adjustments require coordination.
- Cultural Misalignment – Management disconnects between external PEO and internal leadership.
Payroll Software
Cloud payroll software are among the third-party payroll service models that offer services for basic processing needs:
- Affordable Scaling – Low fee tiers, incremental user pricing models.
- Flexible Configurations – Tailor workflows across organisations.
- Full Ownership – Maintain centralised control for changes and customisation
Limitations of software-based payroll need some considerations as well:
- HR/Benefits Not Included – Must integrate additional point solutions.
- Support Limits – Training guides substitute for consultants.
Local and Regional Payroll Partners
Local and regional payroll processing firms are also among the third-party payroll service models that provide localised services and customised support:
- Personalised Service – Direct relationship with provider representative.
- Localised Expertise – Specialised knowledge of state and city regulations.
- Flexible Arrangements – Admin tasks handled based on preferences.
However, using local/regional partners poses some potential limitations:
- Narrower Capabilities – Typically smaller providers with fewer solution options.
- Growth Limitations – At some stage, additional needs may require migrating to larger vendors.
- Potential Outsourcing – Some functions may still be outsourced to third parties.
National Payroll Companies
Leading national payroll firms offer integrated bundles spanning payroll, HR and benefits:
- End-to-End Platforms – Unified systems for efficiency and accuracy.
- Strong Capabilities – Can handle complex needs and custom configurations.
- Compliance Expertise – Stay current with central, state and local regulations.
But drawbacks of national providers revolve around cost and service challenges:
- Overbuying Risk – Full suites carry premium fees for unused features.
- Impersonal Support – Templates substitute for dedicated reps; offshore centres.
- Process Inflexibility – Heavy customisation of systems poses difficulties.
Choosing the Best Payroll Partner for Your Business
Selecting the right payroll partner and third-party payroll service provider is important for the smooth functioning of your business. Here are some essential factors to consider when making this decision:
Evaluate Needs and Priorities
The starting point in choosing third-party payroll service providers is conducting an internal assessment across several dimensions:
- Core requirements – Do you need basic payroll processing or a more full-service bundle with HR and benefits? Choose as per preference.
- Business size – Employee headcount and geographic footprint should align with provider scalability. Consider current state and 3-5 year projections.
- Compliance needs – What level of tax law expertise and auditing support is optimal? Do you operate in multiple states/cities with complex regulations?
- Technology expectations – Integrations with existing finance systems, payroll tool preferences, and analytics needs should be defined.
- Service expectations – Degree of customer support responsiveness, availability of account management and level of consultative services needed are key considerations.
Align Provider Profile
Once requirements are clear, target partners demonstrating expertise across the following:
- Area of expertise – Understand if the provider has a Core payroll focus or integrated Financials capabilities.
- Company size fit – Provider demonstrated ability to scale to current and planned future state.
- Compliance record – Accuracy rate, correction responsiveness, audit support services
- Platform and integration abilities – Compatibility and connections offered to required business systems
- Support model – Service focus areas, account management approach, communication processes
Assess Cost-Benefit Tradeoffs
Evaluating provider options on both capability and affordability parametres is essential:
- Weigh bundled vs. á la carte offerings – Consider current must-haves vs. nice-to-have services. Bundles carry built-in cost premiums.
- Existing integration needs affect pricing – Deep integrations with core platforms require custom development for example.
- Review all direct, indirect and “hidden” costs – Understand all explicit and implicit fees in pricing structures.
The partner meeting all business criteria at the optimal value proposition wins. Avoid over or under buying relative to real needs.
Final Thoughts
Outsourcing payroll activities to qualified third-party partners can strategically simplify critical finance operations for organisations of all sizes. However, with a no. of third-party payroll service models available from bookkeepers to national payroll firms, choosing the right provider match requires careful analysis of needs and priorities. Key considerations include capabilities, compliance expertise, scalability, costs, platform strengths and customer service approach relative to current and future expected requirements.
By mapping specific organisational needs against provider profiles, business leaders can make data-driven partnership decisions that yield operational efficiency, risk reduction, and optimised payroll costs with improved access to specialised expertise.
