Outsourcing payroll benefits and disadvantages
Looking at the pros and cons of outsourcing payroll processing
The modern world brings many possibilities for companies to improve efficiency – outsourcing is one of them. Not only can it save you time, money and stress, but it also gives you access to expert knowledge. A common example is outsourcing payroll – 38 per cent of companies choose to outsource their payroll to some extent.
Working with an outside service provider is a great way to manage your payroll responsibilities. They’ll take care of tasks like salary calculations, tax duties and payments. They’ll also have a team of experts waiting to help with any questions you may have.
In this blog, we’ll look at outsourcing payroll benefits, who it could help most, and any potential downsides.
What does it mean to outsource payroll?
Outsourcing payroll is the practice of working with an outside company that manages your workforce payments. They’ll take over many of your payroll duties, including:
- Ensure payments are made to avoid legal and compliance issues
- Calculating and managing employee salaries and benefits
- Handling tax matters
- Ensuring employees receive payments on time.
These duties offer many advantages, including a massive time savings. Likewise, outsourcing payroll benefits include cost savings and increased compliance. Overall, payroll outsourcing frees company staff to concentrate on more profitable business tasks.
How does outsourcing payroll work?
Once you’ve decided to work with an outsourced payroll provider, you’ll come to an agreement over the exact processes and services involved.
A crucial first step is to decide how and when you’ll provide your payroll information. To get up and running, you’ll need to share some essential employee information, including:
- Names of all workers
- Salary information
- Any daily or hourly overtime rates
- Holiday entitlements
- Expenses information
- Staff timesheets and working hours.
You may also need to include other data involved in calculating your company’s payments. Much of this data would be classed as sensitive and identifiable, so you’ll need to protect it at all times. This includes your own data storage, in transit to your outsourced payroll provider, and their systems. It’s often a good idea to agree on data protection, security and confidentiality before signing any contracts.
Next, you’ll provide them with your business processes. How often are your staff members paid? Does each member of staff receive payments on the same date, or are some different from others? Who can sign off any additional payments, such as overtime or expenses? These will help your provider get to know your company and provide the most seamless experience possible.
Finally, think about any other services you’ll require. Many companies use payroll outsourcing simply to calculate wages and pay staff – but others include things like business intelligence reporting and human resources services. If you need any of those, check that your provider offers them first.
Transparency is the best way to begin an outsourcing agreement. Once all parties understand their responsibilities and have the tools they need, work can begin.
Outsourcing payroll benefits
It saves time
The benefits of outsourcing payroll help free business owners and key staff to concentrate on essential day-to-day business tasks. Payroll takes time, and removing it from your (or your staff’s) to-do lists can bring many benefits in other areas of the business. You might spend more time finding new leads, developing products, or managing your company’s strategy. However you use them, the time savings are one of the biggest advantages of outsourcing payroll.
Time won’t be your only saving. Many outsourced payroll agreements help companies save money on their payroll processes too. Of course, there are obvious financial benefits like not hiring additional accounting staff, not purchasing payroll software, and not maintaining any payments systems. But there are also hidden financial benefits – like the competitive advantage you gain from spending the time saved on profitable tasks.
When outsourcing, you’ll be working with expert providers that help minimise any errors. This means a reduced chance of payment mistakes, missed deadlines, or compliance errors. Your bookkeepers, accountants and staff will all be happy to know that an outsourced payroll is accurate and up to date – and knowing your payroll is correct is essential during an audit.
Comply with local laws
Outsourcing your payroll can also help you keep on top of compliance. It can be tough to understand local regulations and legal requirements surrounding payroll, especially for companies working in multiple countries or without in-house expertise. Outsourcing ensures you are compliant, saving you stress and leaving it to the experts.
Payroll inevitably comes with questions. Accounting staff and directors need to know facts and figures, while workers may have issues with their individual payments. This can strain in-house payroll staff’s time – especially if it’s just one person. Instead, an outsourced provider can answer queries promptly and correctly, keeping staff happy and avoiding any delays.
Advanced software and processes
Your outsourced payroll supplier will likely invest in state-of-the-art software and systems. This will help them keep all information correct and updated, but can also give you insights into payment patterns or business financials. It’ll also provide excellent protection for your employee data security concerns.
Integrate data with other business processes
Your streamlined payroll process can also impact other areas of the company. Many choose to integrate payroll data with human resources systems or time-keeping software, improving collaboration between departments. This helps avoid any data errors, and also makes reporting and reviewing much simpler.
Streamline international payments
Companies with a presence in multiple countries may also benefit from an outsourced global payroll expert. Staff payments can be made in different currencies according to local regulations, helping to save on currency transfer costs and increase employee satisfaction. It can also help when paying overseas workers.
Outsourcing payroll disadvantages
So, are there any disadvantages of outsourcing payroll?
Loss of control
Outsourcing your payroll can potentially leave you with less control over certain services. This is typically a benefit – outsourcing, by its very nature, means somebody else taking control over a service on your behalf. But you should check that your agreement doesn’t impact a key workflow. If you need instant payroll access anytime, you may have to agree on a system with your provider first.
Passing on sensitive data
Payroll contains sensitive employee data. Depending on your location, you may be subject to strict data protection and confidentiality laws, so make sure that any outsourcing abides by those. Your payroll provider will understand their responsibilities in handling the data, but you’ll also need to protect it on your system and in transit.
Risks from lack of communication
Finally, outsourced payroll services are only as good as the communication between supplier and client. You’ll need to inform them of any processes, changes or requests, as a lack of communication can mean errors in payroll. Once those communication channels are open and established, any necessary information can be passed over quickly and effectively.
When should I outsource payroll?
Payroll outsourcing can help streamline processes for most businesses, although some may benefit more than others. For examples:
- Small or medium-sized enterprises without in-house expertise
- Finance teams with limited time for payroll
- Larger businesses spread over multiple countries
- Companies without the will or means to implement a comprehensive payroll system
- Businesses concerned about compliance issues.
Work with experts
Payroll can be a time-consuming process with the potential for errors in figures, deadlines and compliance. By outsourcing payroll, you leave that work to the experts – freeing you to concentrate on tasks that give your business a competitive advantage. To learn more about our outsourced payroll services, get in touch today.
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