Coverage, risk and cost of outsourcing payroll
For most Australian businesses, payroll doesn’t suddenly become a problem. It changes gradually. What once felt like routine admin starts to involve more rules, more exceptions, and more people relying on the outcome being right.
This is usually the point where mid-sized businesses face a choice. They can build payroll capability internally by hiring or expanding an in-house payroll function, or they can buy that capability through an outsourced payroll partner.
Each option comes with different trade-offs. What looks simple on paper often feels very different once payroll complexity increases.
That decision point often arrives under pressure. Australian employee turnover reached 12.5 percent in 2025, increasing continuity risk in single-person payroll setups. At the same time, 25 percent of SME PAYG withholding errors have been linked to internal capacity limits during growth phases .
It’s these pressures that sit behind many decisions to explore outsourced payroll services or to take a closer look at what managed payroll services actually provide.
What payroll actually needs to deliver as businesses grow
Payroll is often described as “processing pays”, but that description falls short in more complex environments.
As businesses grow, payroll needs to do more than calculate wages. It needs to be accurate, repeatable and defensible. Leaders need confidence that pay outcomes are compliant, that results can be reproduced each cycle, and that payroll will continue to run smoothly when people are on leave or roles change.
Complexity increases for predictable reasons. There are more employees, more pay variations, more exceptions each cycle, and more stakeholders relying on payroll outputs. Finance, HR, employees and external regulators all depend on payroll being right.
When payroll is stretched, compliance issues don’t usually appear straight away. They surface gradually, through inconsistencies, extra manual checks, and growing uncertainty about whether the system can be trusted. This is why conversations about payroll compliance beyond Single Touch Payroll (STP) have become more common as organisations scale.
Option 1: Hiring payroll in-house
Where in-house payroll can work well
An in-house payroll model can work when payroll is relatively stable, internal knowledge is well documented, and the business has the capacity to maintain rules, systems and checks over time. In these conditions, payroll can run smoothly with minimal disruption.
The challenge is that these conditions are harder to maintain as complexity increases.
The hidden workload most businesses don’t plan for
What’s often underestimated is the ongoing work that sits behind payroll. Awards, Enterprise Agreements and custom arrangements require regular rule maintenance. Exceptions and edge cases need attention every pay cycle. Payroll data needs to stay clean as roles change, sites open, and rosters evolve.
This underlying complexity is explored in more detail in how Awards and Enterprise Agreements become payroll rules. It’s also one of the main reasons payroll gradually becomes more manual over time.
The continuity risk of a single point of failure
In many businesses, payroll knowledge sits with one person. When that person takes leave or leaves the organisation, handover risk is often much higher than expected. The impact can include delayed pay runs, rushed approvals, and compliance gaps that only surface later.
This risk is rarely accounted for upfront, which is why payroll handover risk deserves more attention.
Recruitment adds another layer of cost and exposure. Hiring a payroll specialist typically costs three to six months of salary, and ongoing Award training can consume around 20 percent of annual time. When knowledge sits with one individual, that investment doesn’t automatically translate into resilience.
Option 2: Outsourcing payroll
What outsourcing payroll actually covers
Outsourcing payroll is often misunderstood as simply handing over pay runs. In practice, outsourced payroll services usually cover much more.
This includes payroll processing and oversight, Award and Enterprise Agreement rule support, structured compliance checks, reporting and approval support, and built-in continuity. This broader scope is outlined in what managed payroll services actually do.
What changes when payroll is supported by a team
Outsourcing payroll is often misunderstood as simply handing over pay runs. In practice, outsourced payroll services usually cover much more.
This includes payroll processing and oversight, Award and Enterprise Agreement rule support, structured compliance checks, reporting and approval support, and built-in continuity.
Where outsourcing tends to work best
Outsourcing is often a strong fit for businesses with multiple Awards or Enterprise Agreements, frequent exceptions, or environments where payroll needs to run reliably without the overhead of recruiting and managing specialists internally.
Structured exception handling is a key factor. Public sector guidance has shown that outsourcing-style models reduce underpayment corrections by enforcing consistent review and escalation processes.
That structure becomes especially valuable as complexity increases. In mid-sized organisations with multiple Enterprise Agreements, specialist payroll teams have been associated with 30 percent faster issue resolution.
Coverage comparison: what each model does well and what it often misses
Processing versus governance
In-house payroll can be effective, but outcomes often depend heavily on the individual running it. Governance rhythms can weaken under pressure. Outsourcing tends to be stronger where repeatability, documentation and review cycles are required, supported by clearer payroll governance and controls (INTERNAL LINK: Article 10).
Award and Enterprise Agreement complexity
Managing Award and Enterprise Agreement complexity internally requires deep expertise and ongoing maintenance time. Outsourced models provide access to specialist interpretation and configuration support aligned with how Awards and Enterprise Agreements flow into payroll rules.
Implementation and change support
Payroll doesn’t stand still. Systems change, businesses restructure, and Enterprise Agreements are renegotiated. Many payroll problems start during system implementations or process changes.
These risks are often driven by payroll implementation mistakes. In FY24–25, 20 percent of $15.4 million in complex recoveries were linked to implementation gaps, while 40 percent of disputes stemmed from undocumented payroll rhythms.
How payroll risk shows up in each model
Underpayments and compliance exposure
Payroll errors can sit unnoticed for long periods. Manual workarounds often hide issues rather than resolve them, increasing exposure over time. This is why many businesses only uncover problems when fixing payroll errors and underpayments.
Where payroll relies heavily on internal capacity during periods of change, risk tends to surface later rather than sooner. Fair Work has issued 760 infringement notices worth $1.5 million linked to unchecked role changes and new sites managed in-house.
Loss of confidence in payroll outputs
As confidence drops, teams start double-checking everything. Pay runs slow down, approvals become stressful, and leaders lose trust in payroll reporting.
Operational disruption
As confidence drops, teams start double-checking everything. Pay runs slow down, approvals become stressful, and leaders lose trust in payroll reporting.
The ATO has noted that manual workarounds can hide around 25 percent of payroll errors until audits, while up to 50 percent of pay run delays occur in non-governed setups during leave periods. In both cases, issues often remain invisible until something goes wrong.
The real cost of payroll most businesses overlook
What hiring a payroll manager really costs
Beyond salary, hiring payroll involves recruitment and onboarding time, salary and on-costs, ongoing training, and the need for leave cover. It also creates reliance on one person holding critical system knowledge. Errors and rework add further hidden costs when payroll becomes manual.
What outsourcing payroll actually pays for
Outsourcing buys access to specialist capability without hiring, continuity and coverage as standard, Award and Enterprise Agreement support, defined escalation pathways, reporting support, and reduced reliance on internal payroll expertise.
The cost of getting payroll wrong
The biggest cost is often the one no one budgets for. Time lost every pay cycle. Internal stress. Remediation work when errors surface later. Reputational damage with employees. Management time pulled away from running the business.
Leave cover gaps alone can reduce productivity by 10 to 15 percent, while error remediation can exceed $50,000 per case. Fair Work has also publicised more than 50 cases that directly impacted employee trust and recruitment.
How to choose the right payroll model for your environment
The right model depends less on preference and more on reality. Key factors include payroll complexity, internal capacity, reliance on a single payroll person, the level of manual handling each cycle, confidence in compliance, and upcoming changes such as new Enterprise Agreements or system implementations.
Why the decision is really about reliability, not capability
For mid-sized businesses, the question isn’t whether payroll can be run internally. It’s whether it can be run reliably, compliantly and without disruption as complexity grows.
If you’re weighing up outsourcing payroll versus building internal capability, the most useful next step is often to pressure-test your current setup. Request a quote to understand what outsourced payroll would look like for your Awards, workforce structure and growth plans, and whether it would genuinely reduce risk in your environment.