Why do companies outsource payroll services?

Answer 1

Payroll Services are services rendered by firms that specialize in preparing and processing payroll for other companies. They take data send electronically by their customer firms, calculate, deduct, and deposit federal and local taxes, create paychecks or direct deposits, and report back to their customers. Outsourcing of the payroll responsibilities to the outside companies frequently saves small or medium companies a substantial amount of money, mainly because they save on salaries for accounting staff. Also, shifting the responsibility out is especially beneficial for companies that have many employees in many different states with different payroll regulations. The examples of payroll services companies in the US are ADP, Paychex, CompuPay.

The companies that handle these kinds of services are usually referred to as PEOs. A PEO (Professional Employer Organization) takes on the role of the administrative employer-of-record in a co-employment relationship with its clients. Besides payroll services, PEOs also offer services that can provide or handle employee benefits administration, unemployment claims, leaves of absence/disability management, workers compensation, and human resources consulting. PEOs are attractive for small to mid-size businesses who simply can not afford or can not handle these resources in house.