Managed payroll refers to the outsourcing of a business’s payroll operations and tax compliance responsibilities to a third-party provider.
A managed payroll service is responsible for calculating employee pay, payment disbursement, tax filing, legal compliance, record keeping and reporting, and other key components of the payroll process on behalf of a business.
Engaging a managed payroll provider may benefit businesses by automating repetitive, time-consuming processes, reducing labor costs, and increasing the security of sensitive information, including financial data.
How does managed payroll work?
Depending on its goals and needs, businesses can outsource all or just a portion of payroll-related tasks that normally would have been completed in-house (either manually or using accounting software) to an outside expert.
The key components of managed payroll are:
- Setup and integration. A managed payroll provider acquires a business’s payroll information before the first pay run, either by integrating with the business’s existing payroll software or importing it. To successfully run payroll, the managed payroll provider needs access to employee data, including employees’ contact and banking information, hourly wage or salary amount, hours worked per pay period, tax withholdings, statutory benefits and bonuses, leaves (sick time, vacation time, and other absences), and more.
- Payroll processing and payment distribution. At the end of a pay period, a managed payroll provider collects necessary employee information from the business (such as hours worked), determines paycheck amounts, and disburses payment to employees, usually through direct deposit or check, on payday.
- Tax filing and compliance. An essential component of payroll that a managed payroll provider is responsible for is calculating, filing, and paying taxes associated with payroll to government agencies. Meanwhile, the managed payroll provider must ensure the business complies with applicable federal, state or regional, and local or municipal tax codes.
- Recordkeeping and reporting. Managed payroll providers store payroll records, such as time sheets and tax forms, to adhere to tax and labor laws. A managed payroll service can also create reports based on payroll data to provide businesses with real-time insight into employees’ wages, hours worked, vacation time, and other metrics.
- Ongoing support and consultation. Managed payroll providers provide business clients with up-to-date, accurate information about technological changes in the payroll space and new regulations that affect payroll processing. Businesses can turn to its managed payroll company for answers to payroll questions or support with problems.
Benefits of managed payroll for businesses
Processing payroll accurately and on time while staying abreast of changes to payroll regulations can be challenging. Therefore, using managed payroll can benefit businesses by increasing efficiency through automation, saving time and cost, and enhancing the security of sensitive financial data. Outsourcing payroll can also reduce the likelihood of making mistakes that negatively impact employees or violate labor laws.
Payroll Automation
Managed payroll providers use accounting software to perform most payroll duties—from calculating employee pay to filing taxes.
A major benefit of automation is increased efficiency. Automating routine payroll tasks saves time by eliminating most manual processes. It also reduces the number of human errors. Fewer errors are critical: Incorrect calculations of paychecks and taxes could prompt concern among employees and business investors and reprimands or penalties from tax agencies.
Payroll tasks that managed payroll providers routinely automate include:
- Calculating employee pay
- Paying employees on payday
- Deducting taxes
- Filing taxes
- Saving payroll records
- Generating year-end tax forms
- Creating payroll reports
Time and cost savings
Engaging with a managed payroll provider can reduce a business’s administrative burdens and resource allocation by replacing the in-house payroll department and eliminating its expenses, such as labor and technology costs.
In addition, if a payroll department fails to fully comply with local tax regulations, then a managed payroll provider can save the business money by ensuring payroll is completed correctly and no fines are levied.
Although managed payroll is an additional expense for some businesses, it is less than running payroll in-house. It also comes with other benefits, like access to up-to-date expertise regarding technological advances and tax changes in the payroll industry.
Compliance and accuracy
A challenging component of payroll is complying with labor laws and tax codes—which change regularly and vary depending on where a company does business. This is especially true for companies doing business in more than one country.
A 2024 PayrollOrg survey of global payroll providers captured the difficulty of running compliant and accurate payroll. Around 60% of global payroll professionals surveyed cited global payroll compliance as a “significant challenge.” Respondents also reported that they felt the regulatory requirements in Canada, the U.K., and the U.S. were the most burdensome.
Because of the complexity of payroll across the globe, businesses can benefit from shifting the responsibility of staying compliant to managed payroll providers and focus instead on operating and growing their business.
In addition, a managed payroll provider can help businesses follow each country’s rules and regulations governing data storage and protection of employee data. For example, the General Data Protection Regulation in the European Union and the Privacy Act in the U.S. prescribe how businesses must safeguard personal information—or pay costly penalties.
Enhanced security
To process payroll correctly, a payroll provider must have access to sensitive employee and financial data, including business and employee bank account numbers and personal information about employees, including contact information and payment amounts. Safeguarding this information from online criminals is essential. And, for many businesses, it is more cost-effective to outsource payroll security to a managed payroll provider with a reputable data protection program and awareness of emerging threats.
Using managed payroll can also be more effective from another perspective: retaining satisfied employees. According to a report by ADP, employees worldwide cite security as the most important component of pay.
Access to expertise
One of the most significant benefits of using managed payroll for a business is access to payroll experts well-versed in the intricacies of paying employees in different locales worldwide. Managed payroll providers are aware of changes in the regulatory landscape, can solve payroll-related problems, and can smoothly enter new markets.
For companies doing business in numerous countries or acquiring new employees in another country during a global merger and acquisition, a payroll managed by seasoned professionals with local experience and knowledge is essential.
Streamlining payroll operations with managed services
Running a business is complex enough. Streamlining managed payroll services by using managed payroll can simplify a crucial component of business operations: paying employees accurately, on time, and in compliance with labor and tax regulations. Outsourcing payroll and its associated burdens can free up internal resources for strategic initiatives.
Typically a managed payroll provider offers benefits such as automation, cost reduction, compliance, security, and expertise. Many also offer support for businesses doing business in multiple countries. Some payroll providers have a successful record of running payroll in the countries where the business is established or plans to enter—cultural knowledge and local expertise matter.
The right managed payroll provider for a business will be agile enough to meet a business’s current business needs while also supporting the business’s future goals, like expansion into new markets or an increase in employees.
Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2025 Velocity Global, LLC. All rights reserved.
