Regardless of whether you are a small-medium enterprise (SME) or a large global corporation, there is this common misconception – payroll outsourcing is something that large businesses can afford to do so. Coupled with the fact that most business owners get uncomfortable delegating parts of their core business functions to an external vendor, the mere mention of “outsourcing” can be an intimidating subject to broach.
However, the mindset of “I need to do everything by myself” is one of the biggest inhibitors of business growth.
As businesses grow, operations may expand regionally and headcount numbers will increase. Payroll processing becomes relatively complex due to the varying labour laws and tax regulations across geographies. At some point, business leaders will consider whether there is a need to outsource payroll or not.
What is payroll outsourcing?
Payroll outsourcing is simply the process of engaging a third-party provider to take payroll processing off HR’s hands. Payroll providers can take care of the end-to-end spectrum of payroll processing, from calculating pay and deductions to salary disbursement and tax filing. Or they may just do part of the job, depending on what the organisation prefers and can afford.
Why outsource payroll?
There are numerous reasons why businesses may choose to outsource payroll. According to The 2019 EY Global Payroll Survey, 52% of the survey respondents outsource payroll taxes processing, 46% outsource post payroll processing, all of the organizations surveyed outsource some portion of their payroll functions. Be it to streamline internal payroll and HR processes or to reduce costs, there are a slew of benefits that outsourcing payroll brings to the organisation.
Here are some instances in which outsourcing payroll may be highly beneficial for the organisation:
Regional business expansion
With globalisation, it becomes increasingly common for business to expand across multiple countries and continents. Some organisations may decide to have their HR teams manage payroll locally. Others may opt for a central HR team to handle payroll for multiple countries as part of efforts to streamline costs. Regardless of the reasons, processing payroll across multiple countries is a herculean task. Varying labour laws, tax deductions and pension contribution rates further complicate payroll processing.
Payroll outsourcing takes the pain of having to be mindful of each country’s labour law away from the payroll team. It is increasingly common for payroll vendors to offer a single platform to handle multiple countries’ payroll data. As the data is being consolidated on a unified platform, it makes it easier to track and account for the varying salary elements across various countries. Not only does this help to ensure accurate salary calculations, it minimises the chances of non-compliance with local labour laws.
Streamline HR operations
Outsourcing payroll can free up a significant amount of time for the HR team. According to Deloitte’s The 2018 Payroll Operations Survey which surveyed organisations globally across multiple countries, it found that the majority of organisations outsource some portion of their payroll functions. However, full business processing outsourcing is still fairly uncommon in Asia.
When engaging an outsourced payroll partner, the administrative and arduous part of salary calculations and deductions are taken off HR’s hands. Depending on the payroll partner, the HR team simply needs to prepare clear payroll instructions for the payroll vendor to process. This could include information pertaining to the number of hours that each employee has worked for the month, corresponding pay rates, discretionary pay allowances or deductions. Key payroll functions as such statutory deductions, tax filings and pension contributions will likely be handled by your payroll vendor. This helps the HR team to focus on other strategic initiatives while maintaining oversight on the entire payroll process.
Outsourcing of other payroll functions
Apart from payroll processing, other administrative payroll functions can also be handed over to an external vendor. Some organisations even outsource payroll self-service, which allows employees to access their own payslips, submit their leave applications and tax forms without having to take up the organisation’s resources.
Successful human capital management starts with accurate and timely payroll. Payroll outsourcing certainly brings about an abundance of benefits to HR, the organisation and employees. Besides cost savings, it helps to ensure statutory compliance and at times, provide advisory on complex payroll matters. Look for a payroll vendor that can provide your organisation with end-to-end payroll solutions that your organisation needs.