In this model, the Payroll Activities are outsourced to an external agency or specialist with the know-how and technology.
Many organizations that do not have a dedicated person for payroll go for this option. Based on their monthly pay cycle, they provide employee salary information and other data, such as attendance, leaves, reimbursement details, etc., to the payroll service provider. The service provider then computes payroll and also takes care of statutory compliance. When payroll is outsourced, there are savings in terms of time, effort and resources.
Since businesses want full transparency and control over payroll, they often hesitate to outsource the function.