Is payroll outsourcing worth the money?

Short answer

For many companies, payroll outsourcing is worth the money because it reduces the risk of errors, frees up time in the organisation and is often cheaper than internal payroll administration, when all costs are taken into account. However, whether it is worthwhile depends on the size, complexity and internal resources of the company.

Is payroll outsourcing worth the money – what does it depend on?

When companies assess whether payroll outsourcing is worth the money, it is rarely just about the price of the service itself. It is largely about:

• Time spent
• Risk of error
• Dependence on individuals
• Legislation and compliance requirements
• Management focus

Payroll outsourcing should therefore be viewed as an overall business decision, not merely an operating expense. The more of the workload that currently falls to a single person or is handled manually, the greater the value typically derived from outsourcing payroll.

What is the actual cost of internal payroll administration?

Internal payroll administration often seems inexpensive because the costs are not visible as an invoice. However, the actual costs typically include:

• Salary to employee handling salary + holiday pay, pension, ATP, benefits, etc.
• Time spent on legal updates and courses
• Vulnerability in the event of illness, holidays and termination of employment
• Risk of errors, additional payments and penalties
• Management time spent on control and follow-up

As a rule of thumb, the actual cost of an in-house payroll function is considerably higher than the gross salary when all indirect costs are taken into account. When these factors are factored in, many companies find that in-house payroll is more expensive than expected. Statistics Denmark calculates companies“ total labour costs (wages and other costs) as an overall key figure, which demonstrates precisely that wages are rarely just ”gross wages’.

7 signs that payroll outsourcing is worth the money for you

Payroll outsourcing typically delivers the greatest value when one or more of the following indicators are present:

1. The company is growing, and the pay structure is becoming more complex
2. There are several types of pay – hourly pay, allowances, pension, etc.
3. You are covered by one or more collective agreements
4. Payroll is currently handled by one key person
5. Errors or delays have already caused problems
6. Management wants to free up time for the core business
7. You’d rather not be the ones responsible for paying the wages

Small and medium-sized enterprises, in particular, find that outsourcing brings peace of mind, stability and a better overview – but larger companies are also increasingly outsourcing their payroll.

When might payroll outsourcing not be worth the money?

Payroll outsourcing is not always the right solution. It may be less relevant if:

• The company is very small.
• The salary structure is very simple
• There is already strong internal salary competence
• There is low risk and limited complexity.
• You have a real back-up plan if the internal key person is no longer there

In these cases, internal payroll administration may be sufficient – at least temporarily.

What do you actually pay for payroll outsourcing?

The cost of payroll outsourcing varies, but is typically between 125 and 500 kr. per employee per month. However, the key factor is not just the price, but what is included, for example:

• Correct payroll processing
• Compliance with legislation
• Reports to authorities
• Advice and sparring
• Documentation and traceability

The price typically depends on the number of employees, the complexity of the payroll and the level of consultancy included. The more types of pay, collective agreements and special rules there are, the more work is involved in each individual payroll run. A transparent agreement is essential for assessing the value, and therefore alignment of expectations The be-all and end-all. If you’d like to see how we set our prices and work together, you can read more here: Pricing & Partnerships.

Is payroll outsourcing an investment or an expense?

For many companies, labour outsourcing is mostly thought of as a cost, when it should be an investment. It should be thought of as an investment because:

• The risk of errors is reduced
• Operation becomes more stable
• The organisation becomes less vulnerable
• Management gets more time

The value often lies in what does not happen: errors, dissatisfied staff and time-consuming problems. Seen in this light, the question is not just what payroll outsourcing costs, but what it is worth to avoid errors, delays and vulnerability.

Conclusion

Payroll outsourcing is worth the money for many companies – especially when complexity increases and payroll becomes a business-critical function. The right assessment requires looking at the whole picture: price, time, risk and quality.

The best solution depends on the company's situation – not on a standard model.

Read more here about frequently asked questions about payroll outsourcing.