How does outsourcing payroll work?

Whether you complete your payroll processing in-house or outsource the process to a third-party company, the steps are similar. Here’s a step-by-step guide to the outsourced payroll process.

1. Select a company
The first step when outsourcing your payroll is to select a company. Some companies exclusively perform payroll processing, while others also manage additional human resources tasks and responsibilities. Find a company that you trust and that offers the services you’re looking for.

2. Provide information
In order to process your payroll, you’ll need to provide the payroll company with initial information to set up your account and ongoing information like hours, time off and bonuses so the company can accurately calculate and distribute pay checks to you and your employees. Most payroll companies will ask for the following information for all employees:

• W-4 tax forms
• Any state-specific tax withholding forms
• W-9 tax forms for any independent contractors
• I-9 forms
• Job application
• Bank information for direct deposit
• Medical insurance information if applicable
• Retirement plan information if applicable

3. Track time
Depending on whether employees are salaried or hourly, you’ll need to track and submit timesheets to your payroll company. Many external payroll processors use digital time tracking software that they, you and your employees can access to make time tracking easy for everyone.

4. Approve pay amounts
Once the payroll processing company has all the information they need, you’ll provide any wage garnishment information or bonus payment information and approve paycheck totals for your employees.

5. Manage taxes and withholding
Before the payroll processor can write the checks, they must deduct the appropriate employee selected withholdings and required state and federal withholdings from the net pay amount.

6. Administer checks
The payroll processing company submits payment to your employees, either through physical checks or direct deposit straight into their bank accounts.

7. Provide reports
Payroll reporting is an integral part of the payroll process. The external payroll company will manage all the necessary record keeping and submit the necessary reports to the appropriate parties or organizations on your behalf.