Benefits of outsourcing your payroll services

Large companies that can afford to have a finance/accounting department probably don’t have any payroll headaches.

They have a full-sized payroll department that handles everything related to the function, including withholding employee taxes, filing quarterly taxes, calculating wages, and distributing funds to applicable government agencies.

Small businesses typically outsource their accounting and payroll.

They rarely have a finance team, and their HR personnel are focused on key responsibilities such as recruitment, record-keeping, ensuring compliance with labor laws, and remediating performance issues.

Burdening them with payroll – which, besides requiring familiarity with accounting functions and tax laws, also involves repetitive, non-core activities – is unnecessary when better alternatives exist.

What is outsourcing payroll?

Outsourcing payroll is the process of hiring a third-party company to handle all aspects of your company’s payroll functions. This can include everything from calculating wages and deductions to processing payroll taxes and generating pay stubs.

By outsourcing payroll, businesses can free up valuable time and resources that can be better used to focus on core business activities.

Benefits of payroll outsourcing

Outsourcing your payroll services can offer a wide range of advantages for your business. Here are some of the key benefits:

Focus on core business

It does not make business sense to devote significant manpower hours to non-core functions that do not generate sales.

Payroll is a critical function, one that must be entrusted to appropriate professionals, but they don’t necessarily have to be someone from the already-busy HR team.

Ideally, the undivided focus of the team should be on core activities that help the business maintain and retain top talent.

The highest benefits are derived when staff is able to utilize most of their time on their strengths. This is why businesses are advised to outsource functions that are outside their core competencies.

Some examples of outsourcing include web development, business accounting, information technology, and taxes and payroll.

Businesses must resist the temptation to take on tasks that are outside of their skill sets. It is quite risky for a start-up owner to attempt handling payroll, even for 5-10 employees.

By choosing to outsource payroll processing to a specialized payroll company, organizations can save time and resources that would otherwise be spent on payroll-related tasks.

Outsourcing employees with the qualifications to do a thorough, professional job can give businesses peace of mind knowing that their payroll function is in competent hands.

Payroll errors can be eliminated or minimized

According to the American Payroll Association, errors in calculating payroll and hours worked to result in over-payment of 1%-8% in annual wages to employees.

Of course, errors can also result in underpayment, and evidence suggests that underpaid employees are not quick to identify and resolve underpayment resulting from accident or wilfulness.

Payroll management requires a significant investment of time and effort.

Rules concerning wages and hours can be complex, and HR staff will need to understand new reporting or state requirements and make time for unexpected notices from the IRS.

Any bolt out of the blue will be disruptive and time-consuming for small businesses.

Some mistakes also pose liability issues and attract a penalty. For instance, the IRS keeps a close watch on payroll practices concerning the following:

• Classification of employees as independent contractors
• Not subjecting vendor payment to mandatory backup withholding
• Failure to issue Form 1099s
• Not depositing withheld taxes in a timely manner
• Wrongly excluding reimbursements from reportable wages
• Not including the appropriate value of taxable fringe benefits in employees’ income

An example would be the CP276B Notice on depositing the correct amount of tax deposits; a Federal Tax Deposit penalty is charged for this error.

A BPO outsourcing solution can counter the risks of processing payroll late or incorrectly, helping preserve the business’s cash and reputation.

A payroll outsourcing provider can offer expertise in administering payroll, utilizing advanced payroll systems to streamline the process and reduce the occurrence of costly mistakes.

Expertise and Compliance

Outsourcing payroll services can be a strategic solution for ensuring expertise and compliance in payroll management.

Companies that maintain offices in more than one country have to deal with the payroll complexities of such a setup. PwC has identified the following global payroll challenges:

• A greater prevalence of tax audits and notices at both employee and corporate level
• An increasing co-operation between tax and immigration authorities
• Overpayment to tax authorities, which cannot be recovered
• Effectively dealing with multi-currency arrangements
• Performing targeted audits for certain categories of employed individuals, such as frequent business travelers

The growing acceptance and popularity of flexible working arrangements also pose their own share of challenges.

Businesses need professional solutions to manage payroll and work-hour issues associated with zero-hours contracts, job-sharing arrangements, part-time workers, and contractors.

When complex calculations are required, and payrolls must be coordinated efficiently across various worker categories and global offices, the expertise of BPO services specializing in payroll is most welcome.

Also, to ensure that the payroll process runs smoothly and compliance requirements are met, businesses need to implement appropriate governance and controls backed by the right technology.

All this can be too much for a small business employing foreign freelancers or a mid-sized firm with a multi-country presence.

Global outsourcing of the payroll function will serve the companies better.

Leveraging the provider’s technology and expertise

Leveraging the expertise and technology of a reputable payroll service provider can significantly streamline your payroll system and enhance efficiency within your organization.

A reputable payroll service provider can offer advanced payroll systems that streamline processes, reducing the likelihood of common payroll mistakes.

In this scenario, outsourcing labor to a payroll services company with an expert staff who is well-versed in the applicable rules and regulations will no doubt be invaluable.

A dedicated payroll team or professional can stay current with new laws and adapt to changing requirements better than in-house management.

Payroll technology advancements, such as mobile and cloud computing and API, offer convenience and transparency.

To take advantage of these trends, businesses must plan their IT strategy and budget.

However, cost constraints or concerns about data issues may prevent some from investing in mobile payroll or transitioning to the cloud.

Outsourcing services have all this figured out, from deploying advanced technology and staying on top of digital trends to making informed decisions on investments and offerings.

Businesses that outsource to a payroll BPO in the Philippines don’t have to struggle with such decisions or extend their budgets, yet benefit from new payroll technologies and trends.

Employees also expect their employers to offer direct deposits, electronic payments, and payment cards.

The ability to access payslips on mobile devices and real-time compensation reporting are some of the latest payroll trends that businesses can leverage for differentiation and competitive advantage.

Businesses are also increasingly looking to hone analytics capabilities to glean useful insights from large data volumes.

In its simplest form, it could involve creating summaries on earning statements, expenses, time sheets, and cost summaries to improve decision-making.

Offshore outsourcing companies may offer such capabilities, allowing businesses added advantages without high costs.

Companies looking to engage the services of a global payroll vendor should consider costs, global or geographic capability, and technology platforms to make a judicious choice.

Cutting down on overhead costs

Time is money. All the hours in a week or month you move away from core activities and towards payroll can be potentially saved and devoted to profit-generating opportunities.

A comparison of the  ‘overhead costs’ of implementing a payroll process, staffing it, and managing it, versus the costs of hiring a payroll provider will show the latter to be a more cost-effective strategy.

Utilizing a professional payroll service provider is a strategic approach to achieving this goal.

By outsourcing payroll services to reputable payroll outsourcing providers, businesses can streamline their operations, reduce staffing costs, and ensure compliance with complex payroll regulations.

Finally, outsourcing and offshoring offer businesses a lot of conveniences.

Even in a simple arrangement, the business can call or email the provider with the necessary details—hours, salary amounts, and deductions for processing and checking off.

Providers may even offer the option to enter payroll information on their website.

Regardless of the mechanism, a quality provider with a solid reputation, such as StaffWiz, can do all the heavy lifting for businesses, allowing them to be more productive, cost-competitive, and ultimately more profitable.