Thanks to the march of technology, more and more companies can outsource some aspect or function of their business to a third party. The reasons for doing so are many – from access to expertise and technology to saving time, minimizing costs, avoiding risks, and so on.
One of the most popular options is payroll outsourcing, where some or all of the payroll management process is delegated to another business. Indeed, the outsourcing industry is expected to reach a value of $10.336 billion by the end of 2023, with a constant growth rate of 4.4%.
In this blog, we’ll examine why payroll outsourcing is becoming such a popular choice for businesses hungry to streamline their operations.
Comparative analysis: payroll outsourcing vs. in-house
Perhaps the easiest way to understand the popularity of payroll outsourcing is to look at how outsourcing compares to an in-house approach. Let’s dive into a few important areas.
In-house payroll processing incurs costs almost everywhere you look, from paying the payroll team to subscribing to payroll software, managing employee queries, and so on—not to mention paying for the expertise necessary to stay abreast of tax rules, personnel, and accounting deadlines.
What’s more, the cost of hiring, setting up, and maintaining a payroll team skyrockets as you scale up your business. Business owners and leaders all too often make the mistake of underestimating the amount of manpower and resources spent on managing payroll.
Cost-effective payroll services can sidestep all these issues. But don’t just take our word for it. According to PwC, companies that outsource payroll management save 18% more on average than companies that deal with it in-house.
If payroll processing is one thing, it’s time-intensive, thanks to the host of intricate details and procedures that HR teams must follow. For instance, activities like benefit deductions, garnishments, new hires, terminations, or paid time off require constant supervision and tracking. Moreover, your finance department must keep track of state and federal regulations. In short, you need to invest significant hours in navigating these nuances.
On the other hand, outsourcing your payroll allows you to save the time of human resources professionals, helping them better concentrate on HR strategy, recruiting, and other administrative functions that can directly impact employee performance.
That’s particularly true as staff numbers grow and you need to manage ever-growing mountains of data related to finances. With payroll outsourcing, you can delegate these tasks to experts who take them out of your hands and simultaneously carry out the work much faster. That leaves you the time to focus on improving the quality of hires, the onboarding experience, or simply the opportunity to put your feet up. You’ve earned it, after all.
There’s no denying that payroll can be a risky business function when managed incorrectly. Payroll processing requires the secure processing of intimate details of your employers. Even the most diligent employees are prone to making errors, leaving a business vulnerable to attack—mistakes and failures are human behavior, after all– and there is always the risk of carelessness leading to identity theft, embezzlement of funds, or tampering with company files.
We’re not saying managing payroll in-house is inherently dangerous. After all, many in-house payroll solutions are designed to circumvent these risks. However, undergoing the labor to set these up and transition from old solutions is a significant drain on both your energy and attention.
Outsourcing your payroll function offers increasingly advanced technologies to counter threats. In addition to redundant backup and multiple server locations, a quality payroll provider will invest in state-of-the-art systems for storing and protecting data as part of the service provided to clients.
One of the most important tasks for businesses that want to remain compliant is staying aware of laws, regulations, and rules, especially when hiring globally. The problem when doing payroll in-house is that it requires backbreaking amounts of research.
Employers need an in-depth understanding of various regulations to minimize the risk of running into various regulations such as labor, tax, immigration laws, etc. Inevitably, that expertise must be paid for.
For example, did you know that vacation or holiday bonuses must be paid in some countries, whereas in others, it is optional? In addition, there can be regional and municipal variations in the law. In the U.S. states of Oregon and Wisconsin, employees need only be paid every month, while in most other states, workers must be paid more regularly.
Outsourcing your payroll function to a provider like Multiplier helps you stay on top of compliance and expand seamlessly without getting distracted by local, regional, and national laws and regulations. Don’t believe us? Book a demo today!
How Payroll Outsourcing Benefits your Business
So that’s the comparisons done—but you might still be wondering what exactly payroll outsourcing has to offer you. Let’s try and encapsulate a few of the ways payroll outsourcing can prove its worth in the real world of business.
1. Increased efficiency
Payroll outsourcing offers businesses a significant advantage in efficiently using their time and resources. By entrusting payroll processes to a specialized provider, companies can free up HR employees to focus on core tasks, lifting the burden of payroll calculations, tax filing, and record-keeping.
2. Cost savings
The expenses incurred when hiring and training in-house payroll staff and maintaining payroll software and infrastructure can be prohibitive. Outsourcing eliminates these overhead costs and lets businesses utilize the economies of scale available to outsourced payroll solutions.
3. Expertise and compliance
Payroll expertise and compliance knowledge can be very challenging to maintain in-house. It’s the job of payroll service providers to stay up-to-date with ever-changing tax regulations, labor laws, and compliance requirements in all the countries they do business. This expertise ensures accurate, compliant, and streamlined payroll processing, reducing the risk of costly errors or legal complications.
4. Data Security
Payroll processing in-house involves wrangling a whole bunch of sensitive data, leaving it potentially vulnerable to attacks. Reputable payroll providers invest heavily in robust security measures, protecting sensitive employee information from data breaches and cyber threats at no extra cost.
Finally, one of the standout benefits of payroll outsourcing is scalability. As businesses grow or experience fluctuations in employee numbers, outsourced payroll services can easily adapt to meet changing needs. That, in turn, eliminates the need to be constantly spinning up or enlarging in-house payroll systems and allows businesses to remain agile.
Frequently asked questions about the benefits of payroll outsourcing
Q. How can payroll outsourcing save my business money?
You’ll be happy to hear that there are a few ways. Payroll outsourcing can save your business money by reducing the costs associated with in-house payroll processing, including salaries, software, and infrastructure. Outsourcing providers also leverage economies of scale, offering cost-effective solutions that minimize errors and compliance-related expenses.
Q. Is my confidential payroll data secure when outsourced?
Yes, provided you choose a reputable payroll outsourcing provider that prioritizes data security! Human error is by far the most common cause of security breaches, a factor exacerbated by under-trained or overworked staff. A payroll provider’s security protocols will exceed what most businesses can achieve in-house, ensuring the confidentiality and integrity of payroll data.
Q. Can payroll outsourcing adapt to my company’s changing needs?
Absolutely! Payroll outsourcing offers much more scalability than the in-house alternative, with services able to easily accommodate fluctuations in employee numbers. This eliminates the need for frequent adjustments to in-house systems, ensuring that your payroll processes can expand or contract seamlessly in response to evolving requirements.