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Best Practices for Payroll Outsourcing

Businesses across the globe are making the decision to outsource their payroll functions. In fact, the global payroll outsourcing market is projected to grow by almost 4% between now and 2018. Asian businesses are part of this trend, due in part to the complexities that arise from the vast diversity of laws and languages in the Asia-Pacific region. Still, there’s no guarantee that outsourcing payroll will reduce costs and improve efficiencies on the scale you expect. The good news is that how you approach the outsourcing process has a huge impact on the project’s success. Here are a few best practices to guide you:

Do clarify your needs.

Processing payroll involves a myriad of tasks. Deciding which tasks to outsource and which to keep in-house is a critical first step. Do you want a provider who will simply run payroll and cut checks/process direct deposits? Or do you want a service that will take charge of regulatory compliance and tax administration on a multinational level? Determining which services are critical and which are “nice but not necessary” will help narrow the field of vendors you consider.

Don’t outsource a broken system.

If your payroll system isn’t working effectively, outsourcing won’t accomplish anything more than paying someone else to deal with your broken processes. While that will be a big relief to your payroll employees, it won’t provide the ROI you’re looking for. If your payroll processes currently involve a lot of unnecessary steps and oversight, streamline them before handing them over to a vendor. If your records are a mess, clean them up first.

Do research your payroll providers thoroughly before choosing one.

Once you know what you want from a vendor, you can begin the process of finding the one that best meets your needs. That includes not only the obvious things like cost and reputation, but also things like customer service and cultural fit.

Do be open to the provider’s expertise.

Don’t approach a vendor with a predetermined concept for “this is how we want you to do it.” One of the biggest benefits of outsourcing payroll is taking advantage of the provider’s resources and expertise. Don’t ignore their suggestions.

Don’t completely eliminate your payroll department.

Retaining a few employees who are knowledgeable in regards to both standard practices and legal considerations provides an important system of checks and balances to your vendor. Companies that don’t have any in-house expertise are at a higher risk of being the victim of a fraudulent vendor.

Do maintain accessibility.

Outsourcing payroll functions doesn’t mean giving up all responsibility and oversight. Make sure you have a way to integrate your historical payroll data into your own systems so that you can review it at will, without having to go through the vendor.

Do build flexibility into your contract.

The initial contract may not meet your needs. In addition, your needs are likely to change over time due to company growth, regulatory changes, personnel changes, etc. Make sure your contract includes the option to revise the service agreement if circumstances change.

Do communicate early and often.

On some level, the decision to outsource payroll will affect every employee in the company. The employees who currently process payroll are an obvious group: It’s important to let them know if, when, and how their jobs will be affected. But the change will affect all employees, whether it’s switching from paper checks to direct deposit or changing the person they call when their pay is wrong.

Do realize that it’s a partnership.

Payroll isn’t one of those functions that you can just hand off and forget about. Identify several contact people in your organization who can answer questions, authorize decisions, etc.

Outsourcing payroll functions can be a great business decision, especially for smaller companies without a high level of in-house expertise. But that doesn’t mean it can’t go wrong. Keeping these tips in mind will optimize the likelihood that your outsourcing decision will be a success.

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