Outsourcing Your Payroll
Outsourcing payroll is just one of several ways you can manage your payroll.?
In fact, many companies in both East Africa and across the African Continent have turned to outsourcing to manage manual business tasks they find unpleasant or too laborious to maintain internally.? The premise is pretty simple - you gather the information, then send it away to an external payroll specialist or financial provider like your accountant, and they take care of the rest.?
But while these services are designed to help you win back time, they have a few key disadvantages.? To help you understand what payroll outsourcing services are, the paragraphs below put together this comprehensive guide on all things payroll outsourcing - from what it is and the advantages and disadvantages of using these services to the costs involved.? The paragraphs below highlight one alternative to using these services that might be more cost-effective and efficient for certain companies.?
What is payroll outsourcing??
Payroll outsourcing is simply getting someone else - like an accountant service company - to do your payroll for you. ?In other words, you delegate or subcontract your payroll process to a third party that handles everything for you.
?These third parties or payroll outsourcing companies are specialists whocan calculate wages and work out deductions or tax withholdings. ?They can even pay employees at the end of each pay cycle or file your organisation taxes at the end of the tax year.?
Organisations will often opt for payroll outsourcing services because they find the task of managing payroll in-house onerous, time-consuming, and stressful. ?But what a lot of organisations do not realise is that farming out core business functions, like payroll, can lead to even more stress and mess over the long term (more on this in a minute).?
Now, there are different types of payroll outsourcing services, including:?
1.??? Partial payroll outsourcing: these services include accounting service firms that can provide support in more challenging areas of payroll while leaving the rest to your organisation to cover. ?For instance, you might go to a provider to process benefits while you continue to record time & attendance and maintain employee records internally.? The outcome is you get the support where you need it, but processes often end up disjointed and fragmented.?
2.??? Full-service payroll outsourcing: as the name implies, you get end-to-end payroll management with this service. ?You hand over your employee data, and the outsourced provider will do the rest. ?While easier than a partial solution, full-service payroll outsourcing is expensive. ?It is also not always the safest option - it requires you to hand over sensitive organisation data, which puts you at risk of data breaches and hacking.?
What are the advantages and disadvantages of outsourcing payroll??
Like anything in life, outsourcing your payroll has pros and cons.? The reality is that each organisation is different and will need to decide what works best for them, given their unique needs and circumstances.?
The benefits of outsourcing payroll include:?
1.??? the external support you will receive: especially if you are using an accounting service firm that employs payroll software that has been used with several other clients;?
2.??? the peace of mind you will get when it comes to compliance: in theory, at least, you will be working with professionals who should understand the country’s legislative landscape; and?
3.??? the time you will save: because you will no longer have to manage your payroll in-house, although you will still spend considerable time liaising with your outsourced provider.?
Outsourcing payroll also has several disadvantages:?
1.??? outsourcing payroll is expensive: it involves paying for hours of labour as well as additional fees for correcting mistakes or covering additional areas like processing benefits – you avoid this by negotiating a fixed fee contract;?
2.??? you do not always get access to the right expertise: especially if using your accountant who may not have experience in handling payroll;
3.??? less control over company data: this can be a major issue in the digital age, given the prevalence of cyber-attacks. ?It also becomes more difficult to access employee data when you need it (e.g. to update it or run a report, etc.); and?
4.??? processes will be more fragmented: which can, in turn, lead to more time spent on smoothing out miscommunications and correcting errors because you do not have a simple, easy-to-follow process each month.?
What is the cost of outsourcing payroll??
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The costs to outsource your payroll can be significant.?
For one, you are not just paying for the time it takes for a payroll accountant to perform these services. ?Several other ‘hidden’ payroll outsourcing costs can crop up, including fees for when corrections need to be made.? In other words, if a payroll provider makes mistakes when processing your payroll, they will often charge additional fees to go back and correct these.?
In addition to this, there could be other costs such as fees for set up, auto-enrollment or processing benefits. All of these expenses can add up at the end of the day.?
When figuring out how much it costs to outsource payroll, companies should consider:?
1.??? The number of employees they need to process payroll for.?
2.??? The amount they want to spend on the labour aspect of outsourcing, and also how much they can afford in terms of contingency spend.?
3.??? What security measures a provider has in place to protect client data.?
4.??? Whether it is easier, simpler (and less expensive) to train existing staff to maintain these processes in house.?
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Evaluation questions:?
1.??? Assurance of commitment to fully comply with the regulatory landscape your organisation operates in and their acceptance of liabilities eg compliance penalties that may arise from their omission and commission.
2.??? The payroll software the organisation uses to process your payroll.
3.??? A sample Non-Disclosure Agreement (NDA) they will offer to sign with your organisation.
4.??? What security measures a provider has in place to protect client data.
5.??? Provide at least one client whose payroll the provider has successfully outsourced.
6.??? Cost of the service.
7.??? Obtain the profiles of the two persons who shall form the Maker and Checker control in processing your organisation’s payroll.
8.??? Turnaround time in case of questions or unexpected requests that your organisations may make to the outsourced accountant.
9.??? Location of their physical office and access virtually whenever you may wish to discuss with them.
10.???????? Their review mechanism before a report being shared with your organisation to be satisfied that their internal controls ensure secure error-free reports.
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