Choosing a Payroll Outsource Vendor


There are 2 types of payroll outsource vendor in the marketplace:

  • Those who used a third party software and provide the services.
  • Those who owned the software and provide the services.

Think Through Your Needs

Before you get seduced by a vendor’s marketing message and before you rush out there to engage a payroll outsource vendor, think through your needs:

  • Do you want to outsource your payroll or are there some concerns that require you to process the payroll in-house?
  • Will you need more functionalities than payroll?
  • Will you eventually need vendor or a system that caters to the regulatory requirements of different states (provinces) or countries?
  • Do you have more than 1 business?

Even if you planned to outsource your payroll to a third party, it is good that you look beyond that and think about other HR system functionalities that you might need in the future, even if not for now.

If you can foresee that your business will grow in a few years’ time to require functionalities beyond payroll services.

Evaluate the Product and Services

In terms of the service (broad view):

  • How long have they been in service?
  • Do they aggressively seek customer feedback and continuously improve their products?
  • How many staff do they have? Are they well organized?
  • Do you some positive references that were not provided by the vendor?
  • Does the vendor have a sizeable list of customers who had retained their business with them for a number of years?
  • Are some of these customers of similar or larger sizes than your business?
  • Can the vendor provide testimonials and references that you can speak to?

In terms of the service (pay run specific), ask operating questions such as these:

  • Are they able to furnish you a sample of their payroll schedule?
  • Are they able to cater to the number of pay-runs that you need in a month?
  • Does their payroll schedule meet your salary payment dates?
  • Do they deal with the tax authority, the pension fund, the insurance fund, payment of government levies and so?
  • Can they direct deposit to employees’ pay into their preferred personal bank accounts?
  • Can they perform off cycle payroll processing for resignations or termination of employee’s services?
  • Are they able to provide payroll reports of various formats, such as by employees, by departments, by payroll items?
  • Are they able to provide costing and general ledger reports?
  • If there are changes to the laws that affect pay, how soon can they make it effective?

In terms of product (end-user experience), put yourself in the employees’ shoes and ask questions like these:

  • How are they going to receive their pay-slips? Can they access them anywhere?
  • If they are e-pay-slip, is there a feature to print the pay-slip?
  • Given that sometimes bank and government agencies requires employee to provide pay-slips as proof of their income, employees would need to assess their historical pay-slips. Will the product be able to do that?
  • Can the vendor provide different pay-slip format? Do they have an itemized pay-slip format that meet your employees’ needs?
  • Can the pay-slip carry your business logo?
  • Is the access to the pay-slip secure?
  • Can vendor pay by

If you have users residing in different states (provinces or counties) and different countries, then you may want to ask questions such as:

  • How do they manage in order to keep up with changes in legislative requirements?
  • Do they have payroll administrators who are knowledgeable about payroll processing requirements for each state or country.

Get Some Understanding of The Technology Behind The Product

There are 2 product categories: specialized products (non ERP system) and ERP system. There are 3 types of technologies: server-side software; server side database and client-side user interface; totally web based technology. There is 2 add-ons: languages and the use of mobile applications. Database can either be split between different business entities or shared.

Each of these has different implications for your users in terms of flexibility and mobility; and for your administrators in terms of security sign-in; transfer of staff; license maintenance.

Ask for Quotes

Ask for quotes from more than one vendor and make a comparison. Look at the costs for activities such as the following:

  • 1 time implementation cost.
  • Monthly processing costs, for payroll and electronic transfers to pension funds, insurance funds and so on.
  • Costs for performing special transactions.
  • Annual processing costs, for example for tax reporting.

Estimate the Efforts

Do not assume for one moment that once you outsource the payroll, there will be little else for you to do. There are 2 areas of efforts that will involve you:

  • The monthly efforts of liaising with the vendors to provide them with the payroll data; to check the processed payroll; and to fund the payroll.
  • The effort to set up the payroll, maybe including the migration of old payroll data.


Have you thought about when to go live and how that will impact your year-end processing or government report

Final Thoughts

If you need other functionalities on top of just a payroll, you may want to consider a payroll outsource vendor that:

  • Has a web-based product and the product is developed by them.
  • Has a hosting service
  • Has a product that was built on technology that integrates tightly with Microsoft excel and word.
  • Has its own query and an in-board query writer.