7 Benefits of Outsourcing Payroll 

When running a business, one must manage numerous competing priorities. Recognizing and solving wasteful business procedures can dramatically improve your company's operations.

One critical task that puts a strain on a business' time, money, and workforce is processing payroll. Payroll outsourcing eliminates many logistical and compliance issues, allowing you to concentrate on more strategic operations.

What is Payroll Outsourcing? 

Payroll outsourcing  means that professionally trained experts process the payments to your employees accurately, on time, and efficiently. According to Deloitte's 2021 Outsourcing Survey Report, the payroll function is the most outsourced process. 80% of businesses use an external firm to manage this function.  

Commonly, the payroll function involves a myriad of tasks, including: 

• Calculating paychecks and the amount an employer must pay 
• Keeping records of employees that are on the payroll 
• Calculating tax deductions  
• Scheduling and distributing payments on time 
• Meeting government remittance deadlines 
• Handing other pay-related employee inquiries 

Which Businesses Should Outsource Payroll?  

Regardless of the size of the companies, all companies must follow the same lengthy and multi-step payroll process.  

Due to the frequent changes in government rules and regulations, small business owners must devote a significant amount of time and effort to comply with the most current requirements. Automating and streamlining this process with payroll software or hiring a third party to manage it is safer than manually processing it.   

You might believe that medium and large businesses can afford and justify keeping payroll in-house with a dedicated payroll department. However, as companies connect globally, the complexity of adhering to additional regulations grows. In most cases, the most cost-effective option is to  outsource to an experienced payroll management firm.  

To sum up, outsourcing payroll can provide numerous benefits to any organization.  

What Are the Benefits of Outsourcing Payroll?  

1. Cost Saving 

Even though processing payroll in-house may seem like the less expensive option, surprisingly, that rarely happens. Processing payroll is more expensive than you would assume – the cost of hiring and paying payroll staff, investing in hardware and software, printing and filing paperwork, and maintaining cloud security all add up. By hiring professional payroll services, you also minimize the possibility of costly errors, fines, and penalties.   

2. Saves Time 

Payroll processing has three stages; pre-payroll, payroll and post-payroll tasks. Managing all the payroll stages is time-consuming as HR professionals spend about 11 hours each week  on payroll administrative tasks. Depending on your employees' payroll cycles, you can expect to go through these stages weekly, biweekly, and monthly.   

Employers also need to consider the time spent managing other issues such as tax reporting and filing, retirement fund management, employee benefits, worker's compensation issues, and others. Keeping payroll in-house requires a lot of time and resources, which leads to productivity losses.   

3. Payroll Regulatory Compliance  

Payroll providers help maintain compliance and accuracy for your business. The  National Small Business  Association  survey states that one in three small businesses report spending over 80 hours – two full work weeks – each year dealing with employee federal tax issues alone. On top of that, businesses today operate with a workforce made up of full-time, part-time, gig workers, and contractors.   

Keeping up with HR policies, minimum pay rates, pay conditions, leave and public holidays, and benefits administration for each individual is undoubtedly overwhelming. Hence, the  IRS  estimates that over 40% of small and medium-sized businesses pay penalties or fines for incorrect filings and payments.   

The outsourcing payroll company would be able to manage all processes while ensuring compliance with legislation.   

4. Focus on Core Business  

Your work culture and employee experience are vital in attracting and retaining top talent. When you delegate a time-consuming administrative task, it frees up valuable time to focus on your core business.  

Assigning more time to activities that generate value and revenue for the company, such as customer service, marketing, and sales, means achieving a tremendous competitive advantage.   

5. Improved Security  

In-house payroll comes with its own set of challenges and risks. Payroll fraud, embezzlement, and identity theft are real threats to businesses. According to  the Association of Certified Fraud Examiners, payroll fraud happens in 27% of all companies. If that's not enough, payroll fraud occurs nearly twice as often (14.2%) in small businesses than in large ones (7.6%). 

If you opt to run payroll in-house, be prepared to spend a considerable amount of energy closely supervising every activity, checking the safety of your server and network, and safely backing up confidential data.  

6. Boost Employee Loyalty, Morale, and Productivity 

According to one survey, 44% of employees stated that they had been paid late by their employers. Furthermore, 48% of those employees were paid incorrectly - with most of them identifying the issue themselves.   

Consequently, these mistakes shift employees' perceptions and may paint the employer as unprofessional and hostile. Untimely or incorrect payroll processing causes reputational damage and leaves employees underappreciated and disengaged.   

On the other hand, when employees have the reassurance that professionals manage their hard-earned paycheck, they may feel secure and empowered. Trust in the payroll system contributes to increased morale and productivity across all levels of the organization. 

7. Access the Latest Technology 

The technological landscape is constantly changing with numerous advancements in the payroll processing field. Outsourcing payroll allows you to leverage the benefit of the latest technologies, such as robotic process automation (RPA), to optimize processing and improve accuracy.  

Moreover, payroll providers offer cross-functional collaborations with various HR systems allowing for seamless integration and sharing of employee data.  

Conclusion 

Payroll is a vital function of keeping your business running. There are many problems your company could run into when doing payroll manually that may directly impact the business and cause significant damage.  

Outsourcing payroll can bring many potential advantages to your organization and ensure business continuity and success.

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*Ivana Radevska is an HR and benefits content expert at Shortlister. She speaks three languages and enjoys writing guides for HR professionals.