Outsourcing payroll process services is the fastest growing trend among companies. In the UK alone, 28% of B2B companies outsource key business operations including their payroll and administration functions. A steady increase in business process outsource spending is forecasted to be $212 billion in 2023 – a 19% increase from 2019.
Why?
In recent years, we’ve seen the development and implementation of technology for businesses old and new alike. We’re at the forefront of readily available services from accounting, HR, CRM, and many others all with a click of a button. The pandemic also helped which has inadvertently pushed businesses’ reliance on technology forward
You need to take advantage of this trend to keep up with your competitors. Streamlined processes and effective services assist with cost-effective solutions for everything including payroll processing.
What Is a Payroll Outsourcing Service?
A payroll outsourcing service is an external entity tasked to take care of all the activities related to payroll for processing salary, payroll taxes, employee benefits, deductions, and more. Payroll outsourcing service providers help offload internal payroll processes to save money and time for the company.
Why Outsource Payroll Processing Services?
Accounting everything you do is one of the most challenging aspects of managing a business. Updating books, filing taxes, and processing payroll, are detailed-oriented tasks that take a lot of time and manpower to successfully do.
You need to have a streamlined process for payroll processing to maximize your focus on the time you spend growing your business. Most payroll service providers have modern software and HR support which can fill the gap your business needs. You can avail standard services for the run-of-the-mill payroll processing needs. However, if you have specialized problems, like tax compliances but already have HR for processing, then you can get bespoke payroll services just for what you need.
Ultimately, outsourcing your payroll processing can lead to:
Automated payroll to save time
A payroll system automates the entire payroll process, allowing you to simplify and streamline payroll administration. It reduces paperwork and significantly reduces data transfer, allowing payroll managers to complete payroll processing faster than usual.
Minimize your errors
Payroll systems can minimize errors by reducing human error factor with calculations and tax compliances through the use of payroll processing software. The software itself provides automated processing, streamlining the whole process making the payroll as accurate as possible.
Access to efficient employee payroll options
Contractor payroll software is able to digitize sensitive documents and can follow compliance for independent contractors and regular employees. This makes it more efficient for payroll processing for different types of employees. With the available options within the software, less time and paperwork is needed for effective payroll processing.
Effective compliance with taxes and laws
Payroll providers are updated on the changing taxes and laws so you can focus on more critical parts of your business. Payroll providers also do all the paperwork necessary for successful compliance.
Reduce your costs
Using payroll services helps in reducing costs within your company. Instead of hiring in-house accountants for payroll, you can reduce your costs by outsourcing payroll services to spend more on revenue-building investments.
Payroll Outsourcing Service Options
Outsource your payroll to a professional employer organization (PEO)
One of the advantages of outsourcing your payroll to other companies is that you’ll have dedicated members specifically servicing your payroll without the added cost of hiring full-time employees.
PEOs specifically lease their employees to fulfill work on your company’s behalf. The PEOs are responsible for the leased employee’s tax compliance and employment requirements leaving you with less risks and costs. The leased employees are still legally employed by the PEOs while working for you.
To maximize your PEO option, you’ll need to have a point of contact employee in dealing with your leased employees to ensure streamlined and efficient payroll processing. Depending on what works best for you, you’ll have different options such as hourly, fixed, or project-based payments for the services.
With Multiplier, we’ll help you split employment duties such as HR, payroll, and benefits processing so you can focus more on building your business without adding too many costs.
Outsource your payroll to a CPA or accountant
CPAs and accountants are also an option for outsourcing your payroll. They can offer payroll processing and other services as well including bookkeeping, payroll tax calculations, and provide tax & financial consultations.
They both provide similar services however, with CPAs’ more rigorous training with tax laws and higher standard for accounting practices, they can provide better services overall. The best service you can get from them is they can provide great compliance for taxes.
One caveat for outsourcing your payroll to dedicated CPAs or accountants is that they are quite expensive. They can be more beneficial as project based hires or short-term solutions for small to medium-sized businesses.
They can charge between $125 – $200 per hour which can be less cost-effective than outsourcing your payroll to PEOs or payroll firms. However, the added services can offset the higher costs by gaining better consultations for stronger financial decisions. One of the best ways to maximize them is to let them work side-by-side with your outsourced payroll service company so you won’t have to worry about late payments and compliance issues.
Outsource your payroll to a payroll providers
Payroll providers, on the other hand, have similar services to PEOs with a small difference. Payroll providers only have limited payroll processing services available. They do not offer full HR administrative services which affects benefits management for the employees. They do however, have streamlined payroll processes which makes it easy for direct deposits, tax filing, and reports management.
More often than not, payroll firms offer software assisting in local and federal compliance, payroll processing, and generating reports. They are more cost-effective upfront than PEOs and are better suited for short-term allocation of payroll processing. However, they are more costly than manual payroll processing but more time efficient.
Components of Payroll Outsourcing Services
Now, what do you need to know about what makes up a payroll outsourcing service?
Payroll outsourcing companies can handle all activities from employee onboarding to tax filing. Below are their major roles and responsibilities.
Report management
Payroll management involves a lot of paperwork and maintenance of records. Your payroll service provider generates and manages comprehensive payroll reports for future reference.
Employee Onboarding
When you hire new employees, payroll service takes care of all the onboarding formalities.
Employee Database Maintenance
Your payroll specialist constantly updates employee information for hassle-free payroll processing.
Time Tracking
Payroll service provider keeps track of each employee’s entry and exit times to process payroll and makes deductions accordingly.
PTO Management
Payroll service tracks paid time off for your employees, including casual leaves, sick leaves, restricted holidays, and permissions.
Employee benefits
Payroll outsourcing service takes care of periodic deductions towards various employee benefits, including healthcare insurance, retirement plan, and much more.
Tax Recordkeeping
Payroll outsourcing services maintain consistent records of tax payments to the corresponding government agency.
Pros and Cons of outsourcing payroll services
Advantages of outsourcing payroll
Increased Productivity
Payroll management is a complicated process that requires constant and close attention. It consumes all your active hours leaving less time to see to your core business activities. Taking the help of full-fledged payroll services eases the management of your complex payroll allowing you to focus on your business to maximize your productivity
Decreased Costs
Maintaining a specialized full-time internal team for human resources and payroll management increases your overhead costs. A well-reputed payroll service provider can handle all these responsibilities efficiently while maintaining accuracy without the added costs of benefits, payroll, and taxes.
Avoid Penalties
Minor mistakes in payroll management can lead to overarching problems. A competent payroll service provider has experts and experience in handling local and international compliance. Talent is readily available for your business, minimizing errors which may incur hefty penalties.
Maximum Security
Payroll processing uses sensitive information of both the company and its employees. With constant connectivity, your system may be vulnerable to cyber-attacks. You need to equip yourself to combat multiple cybersecurity threats.
However, maintaining an in-house cybersecurity team is expensive because of the technology and skillset you need to protect yourself.
Payroll outsourcing service providers equip their systems with state-of-the-art cybersecurity protocols along with talented cybersecurity professionals to ensure your information is secure.
Disadvantages of outsourcing payroll
Services are incompatible with your business
Not all payroll providers or PEOs are a perfect fit for your business. From time to time outsourcing services just cannot provide the services you need effectively. This may be due to differences in structure or company culture; maybe even communication or lack of experience.
That’s why it’s important to consider whether your payroll provider has a good reputation with their clients or is in line with your company’s values and culture.
Time to implement
A new system takes time to successfully be implemented within a company. Employees may need a few weeks or months of training and familiarization for the system to be effective. This will depend on the leadership and how well collaborations between departments can ease the transition to a new implementation.
But in any case, there will always be a short-term disadvantage with integrating a payroll service with an inexperienced company.
Questions you need to Ask When Outsourcing Payroll Service
To maximize your services, you need to know what you’re getting yourself into. By having the appropriate questions to ask before you pull the trigger in acquiring the payroll outsourcing services for you, you’ll have a better idea of what they can offer you.
How often do they update their tax tables?
Your payroll service provider has to be on top of their tax tables. They must be informed and updated on new tax bill implementations and labor code amendments.
Do they have clients from your industry?
Even if the basic payroll structure looks similar, it differs from one sector to another. Everything from local laws to taxation parameters varies from industry to industry. Your service provider needs to have the experience in handling payroll for companies like yours.
Can they support your company’s growth?
Verify if the payroll management specialist can cater to your growing needs as a client. Your payroll requirements need to be able to handle your company’s growth.
What are their security measures?
Discuss the safety measures your payroll outsourcing service provider takes to eliminate data breaches and future proof your company.
When Payroll Outsourcing Services Make Sense
Outsourcing payroll services makes sense for small to medium businesses with limited staff and resources. Usually, expanding the businesses can be challenging due to cashflow constraints and upkeep. Hiring staff specifically for payroll and HR can be a long-term investment for bookkeeping, administration, and payroll management however this may not be possible in every case.
Sometimes it’s cheaper to outsource payroll to save up on better investments that can push your business forward. This can position businesses to invest in payroll later when they’re more stable and established.
However, assigning payroll processing to existing HR employees is also on the table. While this looks like an efficient solution for plugging up the holes in your administrative processes, it does not guarantee that it will be effective.
Handling sensitive information while being compliant with local, federal, and national labor laws is better assigned to an employee specializing in this field. Accurate payroll processing and effective compliance can save businesses from future costs and headaches along the way.
You know this makes sense when you can focus your attention and resources on building revenue-generating projects. You’ll be able to limit your risks and expenses by anchoring your direction long-term and strengthen your business’ core competencies. Outsourcing your non-revenue generating functions allows you to emphasize your activities to better grow your business.
What You Need to Do When Using Payroll Outsourcing Services
With every new service you decide to use, you need to mitigate the possibility of failures attached to it. Consider the risks of outsourcing payroll and have a failsafe plan – before and during – to ensure that you’ll have reliable service throughout your schedule.
Secure year-end data
Ensure your data is secured and backed up before the end of the fiscal year. You’ll be delighted to have reliable and robust data structures when you move on to different vendors or migrate to new systems.
Have controls in place
Never be complacent with your service provider. Always provide controls to prevent fraud or embezzlement. You may need to segregate payroll activities to different people, like assigning separate signatories for payroll approvals and releasing checks.
Hire competent accountants and bookkeepers
Not all vendors have the same level of talent and expertise. Do thorough background checks on the people you hire. Ask past clients who worked with the vendors to give you an idea of their capabilities. If it permits, you may need to vet the talent and test their skills before committing to the services.
Check for client reviews
One of the smartest ways of getting the best service provider for you is to do your research. Checking for client reviews about the company’s service, price, and client base can help you avoid the pitfall of hiring the wrong payroll outsourcing service provider.
How Multiplier Can Make Help You with Payroll
Multiplier is a fully equipped technology platform that can cater to all your payroll management requirements. We guarantee error-free salary processing and deductions with our powerful technology.
You get end-to-end transparency in payroll management followed by a one-click approval from you. On top of that, we have robust systems to protect all your data against security breaches and cyber-attacks, making us one of the safest options in the market.
Our platform and services ensure full statutory compliance with local and international laws allowing you to onboard new employees across the world, manage remote teams, and scale up your business in a seamless way.
Services we provide:
- Multi Country payroll services for full-time, part-time, and freelance employees
- Tax management for local and international compliance
- Employee access to personal payroll and benefits
- Seamless Employer of Records services
- Country-specific insurance options
- Contractors / Freelancers all in one platform
- Benefits management
- Employee onboarding
Keep away from the stress of complex HR payroll management without compromising on safety standards, and pay your employees on time by outsourcing payroll services to us.
Looking for a trusted technology partner to manage your company’s payroll efficiently? Get in touch with us today.
