Payroll Outsourcing

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Payroll Outsourcing

The Challenges on Horizon

With ever so growing financial and regulatory requirement, businesses are now facing new challenges in managing various aspects of payroll. The growing cost of payroll management is shifting management focus from its core to non-core activities diverting its valuable resources to more compliance and administrative functions, adding little or no value to the business.

Processing payroll for employees can be a complex task, taking into account the financial and legal implications. Changes in taxes, employee regulations and compliance issues can make payroll processing highly time consuming and difficult to execute with accuracy.


Key challenges of Payroll Processing Faced by Organizations:

1.      Compliance:

It is essential that any organisation’s payroll system comply with the country’s laws as well as other employee related requirements. ‘Good corporate Governance’ has become more of a necessity now than an option. Also organizations might have to pay a high price for non-compliance. Payroll providers have to monitor changes in legislation at all levels continuously, to ensure all payroll processes comply with the changes. The payroll process should be built in such a way that it complies with the industry’s requirements, such as generating employee equity reports and council reports.

2.      Accuracy:

Generally payroll is a batch process where updations happen on a weekly or monthly basis. But historical information is also important. Payroll systems should be able to provide accurate information with regards to both present and past payroll processes. Forward-looking scenarios, such as possible promotions, hikes and maternity pays should be built into the system.

3.      Higher Costs:

For acquiring a payroll system and implementing it, an organization has to make a significant investment. The business has to ensure that maintenance costs remain low and technology up-gradations happen at an optimal fee.

4.      Safety and Security:

It is crucial that payroll data is protected from any possible data leaks. Breaches in payroll confidentiality can have adverse effects on any business. Therefore it is important to put strict internal controls in place.

5.      Taxation-Related Issues:

It is not easy including accurate tax calculations in payslips. This is because tax rules are dynamic and keep changing. Regular updates are required to ensure that employees’ salaries are taxed correctly. Incorrect tax calculations can lead to penalties, inconvenience and additional work.

6.      Burden on Finance Team:

A number of small and medium enterprises generally do not have a specific payroll person. Instead, they assign the responsibility to employees in the HR or accounts department. It might result in inefficiency if the person does not remain updated on legal, tax and other issues.

Myth buster:

Many organizations are of the opinion that if they pay their employees on time then they have an efficient payroll process in place.

Putting things in perspective:

In the recent Payroll Operations Survey by Deloitte Consulting, it was revealed that the top challenges companies’ faces in payroll processing include:

1) Manual processes (23%)
2) Accuracy and timing of inputs (21%)
3) Non-standard or complex processes (17%)

In the long run, these factors could affect any organization. Therefore, it is imperative that business continually improve their payroll process. Below are some steps that might help.


1. Understanding Tax Policies:

Each miscalculated payroll can result in penalties. Failure to comply with payroll regulations are usually high and companies would have to fix their errors while remitting any payments due to the tax authorities along with the penalties. To avoid penalties, it is critical that businesses understand the state and federal tax laws and incorporate these in their payroll process

2. Perform Ongoing Audits:

Regular ongoing payroll audit provides assurance to identify payroll delays or inaccuracies. Start with a workflow analysis where each step is analyzed from start to end. It is a misconception that errors can happen only if a firm uses manual timecard system. Mistakes are common in the case of automated payroll systems too. These include incorrectly classifying employee type, which could result in wrong tax status, withholding taxes, or forgetting to factor in pay raise after it has been granted to employees.

3. Make Payroll Policy Simple and Transparent:

Errors and mistakes in payroll often occur due to misunderstanding of payroll by employees. It is important to provide clear and brief policies for issues such as attendance, leave of absence and expense reimbursement. Transparency will help plug loopholes in payroll policy before they become significant.

4. Involve Your Employees:

Even if payroll policy is transparent, there might still be employees who do not fully understand payroll processing. Frequent communication with employees can help identify confusion and misunderstanding regarding payroll. Ask employees which payroll processes work for them and whether there are any areas that need improvement.

5. Give Online Access:

Consider providing online access to employees’ current and past pay information. This can significantly reduce the amount of time spent by payroll staff in dealing with payroll inquiries.

6. Minimize Pay Cycles:

By minimizing pay cycles businesses can minimize errors in their payroll processing. Generally, companies follow the practice of paying on roll employees on a monthly basis while part time employees are paid on a weekly or fortnightly basis.

7. Outsourcing Your Payroll:

Today, businesses of all sizes are outsourcing all or part of their payroll functions.


Payroll Outsourcing explained

Outsourcing to an efficient Finance and Accounting BPO Services company, gives a company access to both talent and technology that facilitates payroll processing.

Outsourcing enables companies to leverage the expertise of a payroll specialist who has in-depth knowledge of bookkeeping, accounting and payroll processes. It also reduces costs by allowing companies to recruit only the required payroll staff and taking away the hassles of checking their payroll system for upgrades. Outsourcing also allows companies to improve delivery and service.

Payroll processing basically deals with handling the back office functions of a company by performing administrative duties relating to timely payroll processing of a company. Outsourcing payroll services has helped a significant number of companies in many ways. In the present scenario with a lot of BPO’s rising up and competitive pricing also coming into picture, selecting the right service provider is a very crucial part.

Effective payroll management services have a significant two-fold benefit for an organization. When outsourced to a professional payroll processing company, such services not only allow the organization to stay focused on core business processes, but also facilitate in ensuring employee satisfaction through accurate and timely payroll processing. Subsequently, based on these two benefits alone, a company, irrespective of whether it is a start-up or a giant, should consider outsourcing payroll processing services to dedicated service providers.

Key Point to remember – Ensure that the outsourcing provider you choose can tailor a payroll service or solution to specifically suit the needs of your organization.

Benefits of Outsourcing Payroll Processing

Presented below are a few more key benefits of deploying professional service providers for performing payroll management operations:

  1. Achieve Substantial Cost Reductions:
  2. The most important advantage of outsourcing payroll processing services would definitely be cost-cutting with regards to maintaining office space and staff. Furthermore, overhead costs can also be avoided as a result of this arrangement.

  3. Ensure Accuracy and Timely Delivery:
  4. Needless to say, when experts handle payroll processing, efficiency is guaranteed in the form of accuracy and quality of output, apart from assured timely delivery. This, in turn, can keep the moral of the staff up in an organization when the pay check arrives in time.

  5. Avail skilled Resources Supplemented by State-of-the-art Technology:
  6. The worst problem that an organization can face and lose money on is incompetency of employees handling payroll. Moreover, providing them daily wages becomes costly too. In such a scenario, outsourcing the entire process to a payroll processing company gives access to skilled professionals who can provide premier services using state-of-the-art technology.

  7. Avail Flexible, Customized Timesheet Processing for Payroll Calculation:
  8. Timesheet generation requires specific methods of calculating daily wages and overtime that varies from organization to organization. Since the first step towards effective payroll processing is precise timesheet processing, therefore, service providers offer flexible and custom solutions for timesheet processing.

  9. Ensure Secure round-the-clock Services:
  10. Outsourcing payroll management guarantees secure transactions pertaining to employee details and payment calculations. This ensures complete accuracy that might otherwise be breached when performed in-house in case the particular employee has malicious intent or turns rogue.

  11. Stay Updated with Current State Laws:
  12. For tax purposes, it is extremely essential for the company to stay abreast of current state and federal laws. Any inaccuracy in tax calculations based on changed laws can lead to severe issues for the firm. Therefore, service providers make it a point to stay knowledgeable about the updated regulations and deploy the same diligently during payroll processing.

Payroll processing is a considerable expense for the company and ensuring that it is streamlined is an important task.

“Outsourcing is one solution to help businesses to overcome the challenges of this key function”.

ABN Business Partners.

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