Is it more beneficial to Insource or Outsource your Payroll function?
August 8, 2016
This is a key decision that most organizations today are faced with, whether they are big or small in size. Whatever your ultimate decision is, the benefits should always outweigh the costs. And by benefits it is not only adequate to consider the financial benefits in dollar terms, but there are many qualitative (non-financial) factors to be considered as well. If the decision is to have your payroll function internally within your organization, then the following characteristics may be relevant and important for the management of the company to consider carefully.
Essential characteristics of a good payroll admin system should be:
It should be working harmoniously with the Finance function of the company (even if they are not directly reporting to Finance but to HR instead) and interacting or exchanging information frequently where necessary.
Be subject to timely reviews by senior management, internal payroll reviews performed quarterly / at least half yearly.
Have technically competent and also highly trained staff. Extensive experience is also a plus point here.
These staff members should be sent on Payroll related training sessions regularly to keep up with changes in legislation from time to time.
The Payroll function should be sufficiently large in size to match with increasing organizational volumes. Simply putting more pressure on limited staff is not an acceptable practice as costly mistakes may be made which may go undetected for months before they come to light and fixing them can be very costly.
Should be process driven as well as all activities clearly documented to enable key staff members taking leave of absence, or perhaps even cater to situations of key staff members leaving the organization on short notice.
Investment in new technology where necessary and to make sure that such IT systems are valid and up to date. Data protection and daily backup must be available at all times as a risk management procedure.
The decision to insource or outsource the payroll function – major factors to consider
According to a Payroll benchmarking survey conducted by the Australian Payroll Association in 2014, the majority of Australian companies run an in-house payroll function. This is different when compared to countries like USA or European countries where the trend is more towards outsourcing. The Australian Payroll Association tends to believe that this could be because of the complexity of payroll related legislation in Australia. According to the findings of the survey, 25.4% Australian companies outsource to external payroll experts while 74.6% still prefer to do it in house. Also, having an outsourced payroll function is more prevalent in small and mediums sized companies (SMI) with less than 200 staff or large entities with over 10,000 staff. The survey also indicates that the average salary paid to an in-house payroll services professional has gone up to $78,856 while for a more senior level payroll manager it is high as $127,166.
However, if companies carefully consider and examine the strong industry which is has emerged for companies which provide expert payroll services, they would also come across many possible scenarios where the same or perhaps even superior level of services can be obtained at a fraction of the costs of performing it in house. The below reasons maybe areas which stands out as positive ones in the comparison between in-house payroll vs. the outsourced payroll option.
1. Cost Saving – outsourcing to an expert payroll services agency maybe substantially cheaper than hiring an internal team, training them, purchasing payroll software etc. As this is their main area of business it will take them considerably less time and cost to process your payroll on a regular basis.
2. Efficiencies through industry expertise – The payroll agency may have extensive expertise in conducting and executing payroll activities. This means your company will not experience any down time or be affected by staff absences either. You will essentially be paying only for tasks performed directly related to your payroll activities.
3. Reliability and peace of mind – The more experienced the external payroll services provider is, you can expect them to do a thoroughly professional job all the time. Even with regards to periodic queries from the ATO or other authorities, they might be able to represent your company and quickly resolve the matter. What this means is as senior management of a business, you can concentrate more on the core activities of your business while you can also rest assured that your employees are getting paid correctly and on time – every time.
Hence if you are considering an external agency to outsource your payroll at some stage, it is important to consider how many years they have been in the industry as this is a key differentiator with other payroll service providers.
Save time, money and human resources by outsourcing financial services to the experts. For more details on how your organization can benefit from outsourced payroll services, contact us at Execom Personnel today and find out how our team can assist you in the process from start to finish.
Execom Personnel as the Authors and facilitators of the contents published on this information blog are not responsible for the results of any actions on the basis of information contained there, nor for any errors or omissions. Furthermore, Execom Personnel expressly disclaims all and any liability to any person or entity in respect of anything done or omitted to be done by such person or entity in reliance in whole or part of the contents of this publication. Further as laws change frequently, all readers, users and viewers are advised to undertake their own research or to seek expert professional advice to keep abreast of any developments in the topics discussed, especially the ones covering the areas of law and taxation.