Payroll is a complex process that involves calculating wages, withholding taxes and deductions, and more. Because of its complexities, you may not know how to process payroll, in-house or using a third party. What’s the difference between in-house payroll vs. outsourcing?
In the past, you could have more time (outsourcing) or more money (doing payroll in-house). But thanks to today’s payroll software, you can have both.
- In-house payroll means you run payroll yourself (often with software). Outsourcing means a third party runs it for you.
- Cost ranges: Payroll software often runs about $20–$100 per month (plus any per-employee fees). Outsourced payroll services often cost $75–$200+ per payroll or per employee.
- Control vs. time: in-house offers more control and lower costs; outsourcing reduces time/effort but costs more.
- Compliance: Software helps automate and update taxes; with outsourcing, the provider typically assumes compliance responsibilities.
- Data access: Software gives immediate access and integrations; outsourcing may add steps to retrieve or sync data.
- Rule of thumb: Choose in-house for cost control and visibility; choose outsourcing for hands-off simplicity and compliance support.
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In-house payroll vs. outsourcing
Should you handle payroll in-house or outsource it to someone else? That’s the core difference between in-house payroll and outsourcing.
The payroll process includes the following responsibilities:
- Calculating employee wages
- Withholding taxes and deductions
- Paying employees (e.g., via direct deposit services)
- Filing and depositing payroll taxes
In-house payroll is where you process payroll internally. Many businesses that do in-house payroll use payroll software to streamline the process.
Outsourcing payroll is when you rely on a third-party provider to process payroll. Typically, the third-party provider is an accountant or a professional employer organization (PEO).
In-house payroll is generally less expensive than outsourcing payroll. However, in-house payroll is more time-consuming, particularly if you don’t use software. In-house payroll gives you more control than outsourcing. Outsourcing payroll also gives you access to a team of payroll experts who are responsible for paying employees.
| In-house Payroll | Outsourcing Payroll | |
|---|---|---|
| Cost | Less expensive | More expensive |
| Time | More time-consuming | Less time-consuming |
| Control | More control | Less control |
| Support | Available only if you use software | Access to payroll experts |
Quick comparison: payroll software vs. payroll services
- Management and control: With software, you control setup, changes, and approval. With services, the provider manages day-to-day processing.
- Compliance and filings: Software automates calculations and updates; you remain responsible unless you use full-service filing.
- Outsourced services typically handle filings and may offer tax guarantees.
- Typical cost: Software plans commonly start around $20–$100/month. Outsourced services often charge $75–$200+ per payroll run or per employee.
- Time investment: Software requires initial setup/training and periodic maintenance; outsourcing minimizes internal time.
- Data access and integrations: Software provides instant access and integrations with accounting/time systems. Outsourcing can add steps to export/import data and may slow access.]
When to choose in-house vs. outsourcing (decision guide)
Choose in-house with payroll software if you:
- Want lower ongoing costs and predictable pricing
- Prefer real-time visibility and control over payroll data
- Are comfortable with basic software setup and approvals
Choose outsourcing if you:
- Have limited internal capacity or expertise
- Want a provider to assume compliance tasks and filings
- Are willing to pay more for hands-off convenience
Is an accountant necessary for in-house payroll management?
No, you don’t need an accountant to run payroll. You can run payroll in-house without outsourcing to an accountant or PEO.
According to recent payroll trends, only 34% of small businesses use an external firm to run payroll. The remainder handle payroll internally (or don’t have employees).
If you want to manage payroll in-house, consider using software. Payroll software can help you bridge the gap between doing everything solo and outsourcing.
How to simplify in-house payroll with payroll software
Cloud-based software automatically updates with current federal income tax withholding tables and more.
It can help you stay compliant and streamline the process compared to manual payroll. At the same time, you can save money compared to outsourcing.
Two common options:
- Basic/payroll-only software: You run payroll; the system calculates wages/taxes and creates needed forms.
- Full-service payroll: The provider files and deposits federal, state, and local payroll taxes for you (while you keep in-house control over timing and approvals).
Payroll software features include:
- Automatic calculations: Never worry about calculating your employees’ wages, taxes, and deductions again. Enter employee hours and pay rates and let the software do the rest!
- Direct deposit: Send employees’ net pay directly to their bank accounts with direct deposit. It’s easy, convenient, and often available for free.
- Tax filings and deposits: Full-service payroll handles federal, state, and local payroll tax filings and deposits, giving you all the control of in-house payroll with none of the stress.
- Pay contractors in payroll: You may be able to pay 1099 contractors alongside your employees when you run payroll.
- Employee and contractor portals: Your team gets more control, too. They can log into a self-service portal to print pay stubs, view paychecks, update direct deposit info, and more.
- Integrations: Some payroll providers offer free integrations with platforms like accounting software, time and attendance software, and workers’ compensation.
Setup and time-to-value:
- Most small teams can set up payroll software, add employees, and run their first payroll in a few hours.
- Expect a short learning curve for approvals and recurring schedules.
If you already have an accountant for your business, you can ask them which payroll software they recommend. Check out reviews, sign up for self-guided demos, and contact customer support to find the right software for your business.
Data access and security:
- In-house software provides immediate access to payroll data and reports for audits, lenders, and decision-making.
- Outsourcing may require requests/exports to access the same detail; ensure secure data transfer policies if you outsource.
Case study: 87% savings by taking payroll in-house
Jim Sherman, a Firehouse Subs franchise owner in Mobile, Alabama, previously outsourced payroll for his 20 employees to a PEO.
Although the PEO handled everything for him, outsourcing payroll drove up costs, cut into his profits, and raised his SUTA rate due to the PEO’s SUTA pool.
Jim paid the PEO $4,794.37 during his last year outsourcing payroll. He switched to Patriot Software’s payroll services and spent $610.18 in his first year, saving him over $4,000 annually.
By bringing his payroll in-house, Jim paid 87% less than what he paid outsourcing payroll to a PEO. At the same time, Patriot continued handling the things he was most worried about, tax deductions, SUTA and FUTA, and workers’ compensation insurance.
Want to learn more? Check out the full case study here.
Can you handle payroll in-house? Yes, with the right tools
Many business owners choose to manage payroll in-house to save on outsourcing fees and have greater control over the process.
Managing payroll on your own may seem daunting, but it doesn’t have to be. Payroll software handles calculations for you, reducing errors and time. Full-service payroll handles tax filings and deposits for you, saving you even more time.
Handling payroll in-house might never be your favorite responsibility. But with software, it can become one of the easiest things to tick off your to-do list.
Patriot’s payroll software is affordable and easy-to-use
You don’t have to sacrifice price for convenience when bringing payroll in-house. Take payroll into your own hands with Patriot’s payroll software.
Enjoy features that make handling payroll in-house without an accountant a snap, such as:
- Unlimited payrolls
- Tax filings and deposits (with Full Service Payroll)
- Free direct deposit
- Free USA-based support
- Online payroll reports
- …And so much more!
Check out a free, no-obligation demo to see how easy running payroll in-house can be.
FAQs
Payroll software is a tool you manage in-house to calculate wages, taxes, and deductions and to run payroll. Many solutions offer full-service options that also file and deposit payroll taxes on your behalf.
With professional payroll services, a third-party provider (e.g., an accountant or PEO) runs your payroll, handles filings, and often provides compliance support or guarantees.
Software often starts around $20–$100/month (plus any per-employee fees). Outsourced services commonly run $75–$200+ per payroll or per employee, depending on complexity and add-ons.
With software, you control the process and remain ultimately responsible (unless you choose full-service filing, which may come with a reliability guarantee). With outsourcing, the
provider typically handles filings and may offer tax accuracy guarantees.
Many small businesses can set up and run their first payroll in a few hours, especially if employee and tax info is ready.
Yes. You can bring payroll in-house or move to a service at any time. Plan your switch at period-end and migrate year-to-date data for clean records.
Not always. A PEO becomes a co-employer and may pool unemployment rates; payroll services process payroll without co-employment. Understand the implications for taxes and benefits.
In-house software typically offers instant access and native integrations (e.g., accounting, time tracking). Outsourcing may require exports or provider portals to retrieve data.
This article has been updated from its original publication date of June 25, 2025.
This is not intended as legal advice; for more information, please click here.
