Difference Between Company Payroll and Third-party Payroll

The salary is an employee’s ticket to a great time at the beginning of the month and the only way they can add to their savings systematically (if you don’t own a business). If an employee does not receive their salary on time, then it leads to unnecessary friction, confusion, and loss of reputation for the company. For the employee, it leads to delayed payments, loss of reputation, and the need to borrow from high-interest lenders. A good payroll system can eliminate the difficulty of paying employees on time and automate steps such as salary credit, leave availed checks, and actual salary calculation.

Payroll management involves the management of various employee data to facilitate the payment of salaries to individual employee accounts. A list of employees to be paid is prepared, and then the individual salaries are credited. For payroll to be effective, there is a need for a common payroll management platform with cooperation from HR, finance, and compliance teams.

What is third-party payroll?

Sometimes, the cooperation between the various teams for payroll management is difficult to achieve. It is also difficult to secure employee data or to keep track of compliance. Then a third-party payroll provider would be of much greater value. When the payroll management is through a third party, a professional, an agency, or a software platform, then it is referred to as third-party payroll.

What Is the Difference Between Company Payroll & Third-Party Payroll?

A company can use an in-house payroll system to pay salaries to its employees. This payroll system calculates the number of days worked, the leaves and the type of leaves availed, and the number of holidays in a year/month, and calculates the salary accordingly. On the other hand, in a third-party payroll system, the company outsources its payroll to a third party.

The main company then transfers an amount equivalent to the total salary requirement every month. The third-party company then transfers the appropriate salary for each employee. It calculates the salary breakdown and then shares pay slips with the employee after crediting the salary. This is the main difference between a third-party payroll and a company payroll.

What is the Difference Between Payroll and Onroll?

On-roll employees are working directly for the company, whereas payroll may be off-roll as well. In such an instance, the hires will be working for the staffing company that hires them on behalf of the main organization.

4 Different Types of Payroll

There are different types of payroll, depending on who is managing the payroll. Below we have discussed four main types of payroll, the first being on-roll and the next three being off-roll.

1. Internally managed payroll

This is the first type of payroll. In this type of payroll, the payroll records are managed in-house, and the calculations are also made in-house manually. This type of payroll system works best for smaller teams, not so much for others. For larger teams, you would need to follow one of the other payroll systems.

2. Professionally managed payroll

Professionally managed payroll involves payroll management by chartered accountants or bookkeepers. They meticulously enter every detail into a system and then manage the payroll system manually.  This option works best for medium-sized teams that are unable to outsource the payroll to agencies.

3. Agency-managed payroll

When the company outsources the payroll function to an agency, it is called agency-managed payroll. The agency will be maintaining the payroll records and making the calculations for the payroll. This method is better than previous methods as an agency will promise a higher level of accuracy and minimise the risk of error that can arise from overusing a resource.

4. Software-managed payroll

In a software-managed payroll, software is used to manage and update the payroll records and even automate other operations related to them. None of the calculations happen manually or through software that is not company-approved. Everything happens through a single payroll management platform. This creates a single source of truth for every payroll transaction that takes place.

Why do companies hire on third-party payroll?

Companies hire on third-party payroll because they do not want to manage the very difficult process of payroll or lack the resources for it. They can also generally hire at a lower pay when they go for a third-party payroll and staffing provider. They also do not need to provide any of the benefits that are otherwise due to permanent employees. All these benefits make third-party payroll systems more attractive than in-house payroll.

What are the advantages of third-party payroll services?

• Cost-cutting: A third-party payroll service allows the organization to cut back on the costs of additional resources, software, etc. It also helps to reduce the pay to each hire, as they are not hired on the company payroll. They need not provide benefits like holiday or vehicle allowance, for instance.
• Better business development: With a third-party payroll being taken care of by professionals or agencies or through software platforms, the company can concentrate on what matters most to them, i.e., business development.
• A higher level of adherence to state and central laws:Third-party payroll will be more familiar with compliance and legal requirements and know how to handle payroll and compliance without deviating from established laws. Tax slabs and other compliance-related laws are reframed over time, and if the third party adheres to these laws, then it will be easier for them to handle the payroll accurately and prevent any penalties.
• Expertise in the field: Third-party payroll services have the expertise to manage your payroll a lot better than your company can in-house. The process will be a lot more streamlined and have fewer errors, and the essential parts that are often repeated can be automated, too. But an agency or a professional would be more knowledgeable about how to do this.
• Protection of Personal Information: Third-party payroll service providers are more watchful of the customer data. They protect all the data with industry-certified encryption. All employee details remain secure, and even though they can be accessed through self-service portals, they continue to remain secure.
• Knowledge of the process and industry experience: Third-party payroll providers will have a knowledge of the process and unparalleled industry experience. The payroll handling may vary from industry to industry, as some may provide additional allowances while others may not.
• Customer Service for Your Company and Your Employees: Handing over payroll to a third party ensures that the customer service is great for your company and its employees. Your employees can have any doubt resolved with them, and you need not spend time trying to address issues related to compliance.

Closing words

Having an efficient payroll management system has several benefits for employees downstream and for employers upstream. It makes the process of depositing the salary monthly a lot more transparent, calculations are performed more accurately, and the employee information is more secure.

There are several cost benefits as well to the employer. Let us know when you will be upgrading your payroll management system. Looking for a complete HR management solution where payroll, taxes, attendance, etc., would be accounted for with accuracy?

Alp Consulting, a reputed HR consulting company with several years of experience, can offer you payroll and HR management services. Our e-Manage software for payroll also tracks attendance, manages leave,s and does performance management to calculate appraisals too. It is an all-in-one employee performance assessment and payroll management software. Talk to Alp Consulting today and manage your payroll effectively starting today.

Frequently Asked Questions (FAQs)

1. What is the difference between payroll and payslip?

Payroll is the process of paying the salary to each employee, and a payslip is a document that tells you how much salary the employee received, the month of salary disbursal, and the designation and other employee information.

2. What is the difference between payroll and compensation?

Payroll is the process of depositing salary in employee accounts, and compensation is a specific component of the salary that describes the benefits or allowances the employee is eligible for.

3. What is the difference between payroll and salary?

Payroll is the process of depositing the salary in the accounts of the employees, and salary is the amount received in each account once the payroll process is complete.

4. What is the difference between payroll tax and income tax?

Payroll tax includes taxes like social security tax, medical care tax, and unemployment tax, etc., which are paid by the employer. Income tax is levied on the income of the individual and is divided into separate slabs, with each having a particular deduction.

5. What is on-roll job meaning?

An on-roll job refers to a position where the employee is hired directly by the company and is on the company’s payroll. These employees receive regular salaries, benefits, and are subject to the company’s employment policies and regulations.

6. What is the difference between payroll, on-roll, and off-roll?

Payroll is of two types, on-roll and off-roll. In on-roll, you work directly for the company as an employee and are paid directly by the company itself. You also have employee benefits since you are a permanent hire. Under off-roll payroll, you are working on the third-party company’s payroll and will be paid by them. You are also in a temporary or contract-based role with the client company and are not offered any of the benefits due to full-time hires.

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Yugandhara V. M

AVP HRO

Yugandhara V. M serves as the Assistant Vice President – HRO at Alp Consulting Ltd., bringing over 14 years of rich experience in Human Resource Outsourcing, payroll management, and statutory compliance. He specializes in driving process excellence across HR operations, ensuring seamless service delivery and compliance with labor laws. Yugandhara’s expertise lies in managing large-scale client engagements, optimizing HR processes, and implementing efficient workforce management systems that enhance organizational performance. He also leads comprehensive payroll services, ensuring accuracy, timeliness, and compliance for diverse client portfolios.