Is outsourced payroll the right move for your business?
Although it may feel like the workforce is continually changing, one thing that remains constant is the need to pay employees. Employees rely on being paid consistently and without delays. Pay errors or delays are hugely inconvenient to employees, and for some, it is reason enough to start looking for a new job. In the current competitive labour market, this is something every organisation needs to avoid.
However, payroll management is not child's play, even for small organisations. It is a tedious and sometimes confusing task but a crucial one, nonetheless. It is your organisation's way of honoring its agreement with employees and ensuring compliance with tax regulations.
To keep up with the competition and avoid legal liabilities, your business must stay up-to-date with payroll trends and changes in legislation. However, knowing how stressful and time-consuming payroll activities can be, businesses today may prefer to delegate to an outsourced payroll provider.
Outsourced payroll or Managed Payroll allows you to focus on other fundamentals of running your business while the experts take care of everything that comes with running your payroll. But being a sensitive part of your operations, it is reasonable to have questions about whether it is the right move.
Outsourced payroll Vs. In-house resource
Whether to engage an outsourced payroll provider or keep it in-house is different for every business. The important thing is that you first understand your business and its needs before you can make an informed decision.
Traditionally, payroll processing is a designated function of the internal human resources or finance department. But, increasingly, organisations are allowing third parties to take over these responsibilities to increase efficiency and productivity.
The biggest difference is that an in-house team is on your payroll. They are categorised as employees and are also paid through the same payroll system they are helping manage. On the other hand, an outsourced payroll team is a team of specialists, who only focus on payroll, contracted to help you process payroll in your business.
As mentioned earlier, the decision to outsource or in-source will often depend on your needs. While looking at your needs, there are three main factors you need to take into consideration: data security, flexibility, and cost, and how you will ensure that these factors are covered to mitigate your business and reputational risk.
Security is a big part of payroll processing. It involves handling sensitive information such as addresses, bank details, earning data, and tax file numbers. An employer must ensure all necessary precautions are taken to prevent sensitive company and employee data from being compromised, which could lead to serious crimes of fraud and theft against your employees and business. Keeping payroll records and ensuring their security is also required for legal compliance. Therefore, you will have to consider the security of your data when considering whether to engage an outsourced payroll provider.
In-house payroll management means access to records is limited to only a few individuals within an organisation, minimising the chances of a breach. However, cyber-criminals target all organisations, regardless of how small you are so you will still need to invest in quality data security measures to prevent bad actors from gaining access. The threats are still there; only that you are solely responsible for managing and securing the data.
Many businesses are hesitant to outsource, being skeptical about sharing confidential information with a third party. But this belief could increase your risk of a security breach which could devastate your reputation and see you facing legal penalties. If the outsourced payroll provider you are working with is reputable and has systems in place to secure your data, outsourcing may be a more secure option than keeping it in-house. So, when considering a managed payroll provider remember to review all their security policies and investigate what steps are taken to ensure data safety.
Business growth can bring a whirlwind of changes, requirements, and expectations that may not have been planned for. As your business grows and changes, you need a plan to stay on top of managing salaries and wages for your changing or expanding workforce.
The payroll system you choose should be able to accommodate all your business needs and help your business avoid wasting time, disgruntled employees, errors, and compliance issues.
Despite workforce costs accounting for up to 60% of total business costs for most organisations, research shows that only 27% of financial leaders take into account payroll data when developing commercial and growth strategies. Almost a third of finance and HR leaders lack confidence that their payroll systems can support their growth and expansion plans.
Outsourced payroll can help you deal with the risks and burdens of a growing business. The right provider is able to deal with regulatory compliance, data security, unemployment claims, and tax reporting, saving you the time, money, and trouble of staying up-to-date with compliance requirements that an in-house payroll would demand.
Another good thing about outsourcing is that you will likely have access to several payment options. Insourcing lacks this flexibility as the team tends to stick with the most convenient or popular payment method. This is usually because using multiple payment options means more work for the team, which could also inconvenience the employees if their wages are delayed.
When choosing between insourcing and outsourcing, do not only focus on the now but also consider your business's anticipated needs for the near future, and discuss with providers the process for any changes, expected time delays, and how each of you prefer to communicate.
One of the most popular reasons organisations outsource their payroll tasks is to cut costs. Deloitte reports that 70% of businesses outsource to save on their expenses. But does outsourced payroll guarantee that your business will save on costs? Not necessarily because outsourcing doesn’t come cheap. Quality providers of payroll services are industry experts, and their costs will often match the value they offer.
Most outsourced payroll providers charge by the number of pays or number of employees. Therefore, factors like the number of employees and frequency of payrolls will determine if they are worth the investment over an in-house payroll team. For large companies with thousands of employees, outsourcing may not be an economical choice, and they would be better off investing in in-house payroll management. On the other hand, smaller businesses are more likely to make more savings with outsourced payroll over in-house solutions.
In-house payroll management requires a full-time resource within your business. Upfront, it will definitely cost more, but, in some cases, it makes sense to determine the salary of those involved and invest in the needed infrastructure and skills.
Outsourced payroll means you don’t have to commit to that up-front cost and overhead. You should, however, understand how different providers bill and price their services. A good provider will be able to walk you through all their costs transparently so you can ascertain whether outsourced payroll is a cost effective solution for your business.
Another thing to consider when looking at the cost of outsourcing vs. insourcing is the hidden costs of payroll. What other productive business functions could your employees do with the time spent processing payrolls? Payroll may be a necessary function, but it is non-productive. Instead of paying managers a salary to spend time reviewing and revising payrolls, you can outsource the functions and allow them to participate in other growth creation functions.
Then there’s the cost of failing to comply with regulations. Any mistakes in payroll compliance could cost you thousands in penalties and interest which can be mitigated by outsourcing to a payroll team that is skilled and specialised on everything payroll. Eventually, the cost issue will come down to several factors you must carefully consider before deciding whether to outsource or insource your payroll responsibilities.
Can outsourced payroll benefit you?
If, after considering everything, you have determined that outsourced payroll is the best path to take, the next challenge is contracting the most qualified team. Findex is a specialised team of Managed Payroll professionals dedicated to helping you boost productivity by administering your payroll from start to finish. We provide full-service Managed Payroll services, which give your business more time and resources to focus on other core functions so that you can provide value to your customers.
Besides offering great expertise, we also provide our customers access to a rich network of tax consulting specialists to help ensure they get the necessary support to help them stay compliant. We use advanced and secure payroll technology so you can be sure your data is safe with us. To learn more about the value we add to your business by helping save you time and money, our Managed Payroll team is on standby to discuss your needs further.
Book a complimentary review of your payroll needs with our Australian payroll professionals and discover how easy payroll management can be when you work with a reliable payroll management team. With no upfront costs* for a limited time, there’s nothing for you to lose, but a lot more time and savings to gain.