Payroll is one of the most important, but often overlooked aspects of your business. If staff aren’t paid on time, their morale can dip, your reputation can suffer, and they may quickly be looking for other jobs. Whatever payment measures you have, it’s important to meet your commitments. However, managing payroll can be costly, complex and labor-intensive. That’s why a growing number of businesses offer to do it for you.
Payroll outsourcing services are growing in popularity. Data suggests the global payroll outsourcing market is set to experience steady growth of 5.72% annually up to 2025, with the majority of that coming from North America. As companies seek to save money and streamline their own internal operations, more and more of them are consulting payroll outsourcing operations.
But which is best? The answer is not entirely clear cut. To make a decision, we need look at key issues of costs, complexity, workload and security.
Costs: in house payroll versus outsourced payroll
The headline figure most people will look at will be costs. The traditional approach involving an in-house team will come with a variety of costs. As your company grows, you will have to either train your staff or recruit new people. This can be a difficult decision.
Recruiting extra people will mean a higher wage bill as well as a more complex payroll structure. Training existing staff might appear cheaper, but this also has a cost. If you’re stretching the capacity of your team, you may be taking them away from other, more profitable, duties.
Many businesses, especially in the early days, live or die by the value of their staff’s time. In an ideal world, you want more of them focusing on the big dollar tasks – those jobs which drive revenue to the company such as generating sales or producing sellable content or products – rather than nickel or dime jobs. These tend to be administrative tasks such as managing accounts or payroll which are extremely important, but don’t directly generate revenue for the business.
Payroll outsourcing, on the other hand, will simply involve paying a monthly subscription fee. This will vary depending on the number of people in your business, the complexity of your payroll and the depth of service you’re requiring. Some companies currently offer quite extensive features included added reports and insights which provide more value over and above basic payroll services.
The routes that turn out to be the most expensive may vary depending on your provider and the nature of your business. With the range of payroll outsourcing companies continually expanding, there is more choice in the market than ever. If you choose the right one, you’ll have every prospect of getting a very good deal.
Related: Risk or reward? The pros and cons of payroll outsourcing
Complexity: in-house versus payroll outsourcing
The other immediate benefit for outsourcing is complexity. Payroll is a demanding task, and as regulations become more complex, is getting more complicated all the time. It requires extremely careful attention to detail to make sure the right benefit and tax deductions have been made as well as applying all relevant wage garnishments. This team will also need to manage any changes to staffing and to onboard new hires quickly.
Regulations keep changing and in house teams will have to stay alert to the latest development. This may involve a significant amount of training in order to keep people abreast of what’s expected of them.
Any mistake here can create enormous problems for the company later on. This is an area in which many smaller companies have been known to slip up. If you’ve decided to use your existing team and train them to manage payroll, they can make costly errors, especially if they are being stretched across too many duties.
Mistakes can also happen with payroll outsourcing companies. Nobody, after all, is infallible. These companies are, though, highly proficient in what they do. They are staffed by specially trained professionals who benefit from the latest technology to give them all the support they need to deliver the best possible results. The best companies will have measures in place to prevent or rectify mistakes. In other words, the chances of them making an error are extremely small, as long as you have chosen a good company.
Payroll outsourcing, on the other hand, requires much less work. You will pay your monthly fee and the company will handle everything. That’s not to say work isn’t required at your end. You will have to check all the information is correct and hand over any information for new starters, but the overall workload will be much lighter.
Compliance management can be problematic, particularly for small businesses which may not have access to dedicated payroll experts. You will be an expert in your field, but that doesn’t mean you know Federal tax codes inside out.
Any errors and oversights which occur will be your responsibility to fix. With outsourcing you will be in the hands of leading professionals who will make sure you’re compliant with every aspect of the latest regulations.
This is one factor which could go either way. Cyber security is a growing problem for businesses of all kinds. However, over the last couple of years, cyber criminals have been turning their attention to smaller enterprises. Firstly, they make easier targets and secondly, even the smallest companies are processing large amounts of sensitive data, much of which will have real value. Recent figures suggest cybercrime will cost the world $10.5 trillion by 2025. All businesses in all industries are potential targets.
Outsourcing is viewed by some as a security threat. Using a third party to handle data opens businesses up to risks they are not in control of. Any loss of data caused as a result of a problem with the outsourcing company will be your responsibility as the data owner. For this reason, some people may view third parties as a potential risk, but that needn’t be the case.
In most cases, payroll outsourcing companies will come with the very highest levels of security available. Leading outsourcing companies should protect data with cutting-edge encryption and extensive digital back up provisions. This will meet and, in many cases, exceed your own capacity, ensuring personal data receives the very highest levels of protection.
Reliability and control
The final point to bear in mind is reliability and how much control you have over the process. If you’re a small company with a small payroll team – perhaps consisting of only one person – what happens if that person is ill or on leave? With COVID-19 still presenting a significant problem dealing with staff absences is a constant concern. Will you be able to pay staff and other contractors in the usual way? If not, you can quickly find trust between all parties starts to erode.
The message – we can’t pay you because the payroll guy is ill – is rarely met with much sympathy. An outsourcing company will have none of those problems. If one person is ill, they can be replaced by someone else ensuring a constant and secure service.
Choosing the right payroll provider
In many cases, outsourcing payroll will be cheaper, faster and more reliable than managing it in-house. However, much of this depends on the payroll service provider you use. They may vary in their pricing, the technology they use and even the quality of the service they can offer. Researching their background beforehand and perhaps checking any feedback available from their past customers can help you make the cost/benefit calculation to decide whether to outsource or keep it all in-house.