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Ensuring Your Outsourced Payroll Is Compliant

HR today is playing increasingly strategic roles within the organisation, as talent management and employee engagement becomes key business imperatives. With business leaders and HR focusing on people-related priorities such as well-being, succession planning, and HR technological integration, many organisations are choosing to outsource their administrative HR tasks, including payroll.

Aside from operational efficiencies, another key reason why HR may choose to outsource payroll is due to compliance. Within APAC itself, there are over 20 countries, each with its own set of payroll rules and regulations. It is no surprise that close to 51% of organisations have limited confidence in their payroll compliance, and prefer to hand the complexity of navigating each countries’ payroll regulations to an outsourced payroll vendor.

While outsourcing payroll is an attractive option to organisations, that does not mean that the responsibility of payroll regulatory compliance should all be placed on the payroll vendor. HR should also play a role in ensuring that their outsourced payroll vendor maintains compliance with local payroll laws and regulations to prevent legal penalties, hefty fines and reputational damages.

Here are some best practices that HR can undertake to ensure that the outsourced payroll provider remains compliant.

Conduct due diligence on the outsourced payroll partner

With the plethora of outsourced payroll partners in the market, organisations can easily be swayed with attractive rates and features. While those are key considerations without a doubt, organisations need to ensure that the payroll are compliant. One way to ensure that the compliance check boxes are ticked when looking for a reliable vendor is to look out for relevant accreditations or certifications. One such certification is the ISO/IEC 270011, which is the international standard for information security. The ISO 27001 certification sets out the specification for Information Security Management System (ISMS), which addresses people, processes, and technology by setting guidelines that help organisations manage their information security. Another certification to look out for is the American Payroll Association’s Certified Payroll Professional (CPP), which verifies that a payroll professional possesses a specific level of knowledge, skills and abilities in the payroll profession. Alternative ways in which an organisation can conduct due diligence on the outsourced payroll provider is by browsing online reviews, asking for past references or even conducting interviews and internal audits. By doing in-depth research on the outsourced payroll provider’s credentials, this prevents both the organisation and the outsourced payroll provider from falling out of the boundaries of law.

Implement clear payroll policies and procedures

Establishing clear policies and procedures internally is crucial to ensure that the outsourced payroll provider remains compliant with payroll laws. This may include aligning with the payroll provider on data security practices such as frequency of data backup runs, data recovery protocols, and access controls. It is also prudent to arrange for periodic internal audits on internal payroll processes to ensure that each employee is compliant with payroll policies and procedures. Likewise, conducting external audits on the outsourced payroll provider ensures consistent practices with internal payroll policies and procedures. For instance, this may mean reviewing the list of accesses biannually with the outsourced payroll provider to update the list of users as well as the level of access that each user is entitled to. By establishing clear policies and procedures, this helps to ensure that the payroll outsourcing arrangement is secure and compliant.

Keep abreast of ongoing legal and regulatory changes

Keeping update of ongoing changes in payroll laws and regulations is key to staying compliant. While the responsibility of staying payroll compliant may fall on the outsourced payroll provider, it is also important for internal payroll staff to be abreast of ongoing changes in order to spot lapses or signs of non-compliance. The first step is to partner closely with the payroll provider to ensure that they are aware of any new payroll regulations. The second step is to review and update existing payroll policies and procedures to align with payroll regulatory changes. By staying informed about legal and regulatory changes, this helps to ensure that both internal payroll policies and procedures, as well as the outsourced payroll provider, remains compliant with all relevant laws and regulations.

One of the key pillars of a strong outsourced payroll vendor is compliance. Without this assurance, the payroll provider becomes unreliable. There are various best practices in which organisations can ensure that the outsourced payroll provider is compliant – by conducting due diligence and audits on the payroll provider periodically, reviewing existing pay policies and procedures under the outsourced payroll arrangement, and by staying on top of changes to local payroll regulations. These processes may sound like a tall order but with these tips, organisations can be fully assured that the outsourced payroll vendor is well protected internally and externally.


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