Outsource payroll accounting: When is the right time?

The question is not if, but when. At some point, almost every company reaches the point where internal payroll creates more problems than it solves. Overtime accumulates, errors creep in, and there’s no time left for strategic tasks.

But when exactly is this point reached? When does it make sense to switch to an external service provider? And how do you recognize that your company is ready for it?

This article provides you with concrete guidelines. No vague recommendations, but measurable criteria for your decision.

7 Signs That You Should Outsource

Some warning signals are obvious, others creep in slowly. Here are the seven most evident signs that the time for outsourcing has come.

1. Your payroll is regularly working at its limit

The payroll week is the most stressful period of the month. If your team regularly works overtime during this time, skips lunch breaks, and is on edge, something is wrong.

"I have a flood of emails, up to 70 emails a day. I sort them with flags in Outlook; I actually also have to file them in our law firm's document management so that others are informed in case I’m on vacation or sick. This all takes a lot of time and capacity."

This is how a payroll clerk describes her daily work. This is not an isolated case. If the basic load already fills 100% of the capacity, there’s no buffer for unforeseen events.

Check: How much overtime occurs in the payroll week? More than 10% additional working time is a warning signal.

2. You cannot take on new employees or clients

Growth is good. But if every new employee or client brings your system to its breaking point, you have a scaling problem.

"We currently have no capacity for new clients and even have to decline them."

This is reported by a payroll office owner. Declining means leaving revenue on the table. And worse: losing reputation because you cannot deliver.

Check: Have you had to decline orders or postpone clients in the last 12 months?

3. Your error rate is increasing

Errors in payroll are costly. Not only financially, but also in terms of trust. If employees need to check their pay statements because they no longer trust them, something is fundamentally wrong.

Typical signs of increasing error rates:

• Frequent corrections after the payroll week

• Inquiries from social security agencies

• Complaints from employees about incorrect statements

• Increasing number of contributions correction reports

Professional service providers have error rates of less than 1%. If your internal rate is higher, outsourcing pays off just from avoided error costs.

Check: How many corrections occur per month? More than 3% is too much.

4. You cannot find qualified personnel

The shortage of skilled workers particularly affects payroll. Experienced payroll clerks are rare, and training new employees takes months to years.

"I’m from accounting and I’m asking for my colleague from payroll, who is always very overwhelmed with all the emails that come in."

If a position has been vacant for more than six months, it will probably remain vacant for the next six months as well. The time you spend on recruiting is time missing elsewhere.

Check: Do you have open positions in payroll? How long have they been open?

5. Legal changes overwhelm your team

German payroll law is among the most complex in the world. Minimum wage, short-time work, ELStAM, social insurance reports: Requirements are constantly changing.

An internal team must manage further training alongside daily operations. This is rarely successful. The result: uncertainty with new regulations, fear of errors, and in the worst case, actual compliance violations.

Specialized service providers deal with payroll law all day long. They are informed faster and more confident in their application.

Check: When was your payroll team's last training? Longer than 12 months is too long.

6. Your processes are not documented

What happens if your payroll clerk falls ill? Or resigns? If the answer is: "Then we have a problem," then that’s a problem.

Many companies lack documented processes for payroll. The knowledge resides in the minds of individual employees. That is risky.

"But I don’t have time to improve it."

This is how a payroll clerk describes the dilemma. Daily business leaves no capacity for improvements. An external service provider brings standardized processes and reduces the personnel risk.

Check: Could a new employee understand your payroll based on the documentation?

7. You want to grow but don’t want to hire proportionally more staff

This is perhaps the strongest argument. Internal payroll scales linearly: doubling the number of employees means about double the effort.

External service providers with modern technology scale better. AI-assisted preliminary data capture, automated checks, and standardized processes make the difference.

"I am the manager (of the payroll office, 45k payrolls). I see that the same requests keep coming in and that we could save a lot of capacity here."

Managing 40 new clients with only 0.5 FTE more: That is possible with the right technology.

Check: How many employees would you need for 50% growth?

The Break-Even Point: When Does It Pay Off?

Feeling is good, calculations are better. Here’s an honest calculation of when outsourcing becomes financially worthwhile.

The full costs of internal payroll

Many companies only calculate salary. This is too short-sighted. The actual costs include:

Personnel costs:

• Annual salary: €45,000 to €65,000 (depending on region and experience)

• Employer’s share of social insurance: approx. 20%

• Vacation and sick leave coverage: approx. 10% surcharge

Material costs:

• Software licenses (DATEV, Agenda): €2,000 to €6,000 per year

• Training and further education: €1,000 to €2,000 per year

• Workplace, IT, office supplies: €3,000 to €5,000 per year

Indirect costs:

• Recruiting due to turnover: €10,000 to €20,000 per vacancy

• Training new employees: 3 to 6 months of reduced productivity

• Error costs: difficult to quantify, but real

The costs of external payroll

External service providers typically charge per employee and month. The range is between €10 and €25, depending on:

• Service level (Basic vs. Full-Service)

• Complexity (collective agreements, shift work, construction)

• Volume (tiered pricing above a certain size)

The break-even point by company size

Small companies (up to 20 employees): Internal payroll is rarely sensible. Fixed costs (software, knowledge) are spread over too few payrolls. Outsourcing is almost always cheaper.

Medium-sized companies (20 to 100 employees): Here lies the sweet spot for outsourcing. The cost savings are significant, and scalability becomes an advantage.

Larger companies (over 100 employees): Pure cost calculation becomes tighter. But: The strategic advantages (focus on core business, flexibility, expertise) often outweigh.

Growth Without Proportionally Increasing Personnel

This is the real game-changer. Modern payroll service providers enable growth that would not be possible with in-house accounting.

The Problem of Linear Scaling

Traditional payroll scales linearly. A payroll clerk can handle about 150 to 200 payrolls per month. More employees mean more payroll clerks.

The Solution: Tech-Enabled Services

Modern providers combine human expertise with technological efficiency. The result: non-linear scaling.

"We see most of the efficiency gains with you when the client can still do what they want – but we get the data in a standardized way."

Integration with Existing Systems

One of the most common concerns: "Do I have to give up my DATEV?"

The answer: No. Good service providers integrate into your existing infrastructure.

DATEV Integration

DATEV is the standard in German tax consultancies and many companies. A transition would be cumbersome and risky.

Modern payroll platforms therefore position themselves as a preliminary system, not as a replacement:

• Data flows through the platform, then to DATEV

• No double data entry

• No media breaks

• Familiar interface remains

Read more about DATEV integration in our article 10 processes in payroll that AI already handles today.

The Transition Process: Timeline and Effort

You have decided. How does the transition actually work?

Phase 1: Preparation (2 to 4 weeks)

Effort for you: Approximately 4 to 8 hours for preparation and coordination.

Phase 2: Data Migration (1 to 2 weeks)

Effort for you: Minimal. The provider leads the process; you supply the data.

Phase 3: Test Operation (1 month)

Effort for you: Increased in this month. Expect 2 to 4 hours per week for review and coordination.

Phase 4: Regular Operations

Effort for you: Significantly reduced. Most companies report 50 to 70% time savings.

Why project b. Is the Right Partner

When the time for outsourcing has come, you need the right partner. project b. offers exactly what modern payroll needs.

RITA: The AI that Takes Work Off Your Hands

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Security and Trust

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Comprehensive information on outsourcing can be found in our guide Outsourcing payroll: The complete guide for 2026.

Learn more on our page Payroll Outsourcing.

Conclusion: The Right Time Is Now

If you recognize more than three of the seven signs in yourself, the time for outsourcing has come. Waiting will not make it better.

Further information can be found in our overview article Outsourcing payroll: Costs, benefits, and providers.