Payroll outsourcing is a category of Business Process Outsourcing (BPO) where an employer transfers all or part of its payroll processing to an external service provider. With most BPO services, cost is a main driver of adoption. Cost savings are realized in outsourcing repetitive, highly time consuming or highly technical processes. The outsourcing of these functions allows for the employees to focus on value add or revenue generating activities.
Most Small and Medium Enterprises (SME) with stable, salaried permanent employees might find it convenient and efficient to process payroll internally. Compliant payroll processing becomes tricky when workers are a mix of part time, full time and contingent (contractors). Add commission compensation and payroll across several tax jurisdictions and the compliance risk and process complexity increase exponentially.
For many employers, outsourced payroll services offer an attractive and valuable alternative to in-house processing. Payroll outsourcing vendors can provide a less expensive, simpler means of paying employees, filing taxes, and performing a host of other duties that are not core competencies of most companies.
Basic Payroll Outsourcing services
Payroll outsourcing vendors generally offer basic services such calculating employee payroll and tax/statutory obligations, printing and delivering (weekly, bi-weekly, monthly) checks, preparation of bank files, staying current with the latest tax regulations and providing management reports.
In addition, some outsourced payroll vendors can offer cloud based services such as on-line timesheets, timesheet approval processes, leave approval and tracking and an employee web portal allowing workers to access their records using a web browsers or through a mobile app.
Benefits of outsourcing your payroll
The direct costs of processing payroll can be greatly reduced by outsourcing payroll. Accepted wisdom is that a small business with 10 employees will typically spend $5,000 per year in direct labor costs associated with payroll.
Manual payroll is a compliance headache in the best case and an accountability nightmare in the worst case. To stay current on ever changing regulation takes time. Mistakes occasionally happen and that’s when the time and money nightmares begin.
Outsourced payroll vendors core competency is staying current with tax and statutory regulations. Often they can also provide employee payroll support, answering questions and resolving issues.
Manual payroll processing is a time-consuming process. Outsourcing payroll can free up employee resources to pursue more important value-added and revenue-generating activities. Inc. magazine recently identified outsourcing payroll as one of the 11 Things Every Entrepreneur Must Outsource to Survive
“ If you’re dealing with your business’s payroll, it’s time to stop.” Business expert Rhonda Abrams is quoted in Inc. as saying, “If you have one employee, get a payroll service.”
Keeping current with constantly changing regulations, withholding rates, government forms and statutory requirements can be daunting. Outsourced payroll vendors offer small and medium enterprises payroll expertise that was previously available only to large corporations.
The key to any BPO service is to not focus on cost. It’s the increase in value that matters.
Learn more about outsourcing