What You Should Know About Payroll Outsourcing & How to Get Started
It’s always a good thing when your company grows in size. But with the increasing hands-on deck comes a plethora of human resources needs and demands to keep the workforce satisfied. Among the many things the management team has to monitor and address, payroll is one of the very important ones.
Payroll can get frustrating as your business grows in complexity. Keeping up with the various rules and regulations controlling payroll and operations is challenging. It leaves some HR professionals to think ‘Could it be the right move to outsource payroll?’
To help you decide further on whether or not payroll outsourcing would be a good choice for your organisation, here are some things you need to know.
What is Payroll Outsourcing?
Payroll outsourcing entails engaging a third-party payroll agency to manage your company’s payroll. This payroll service provider makes certain that:
- All payments are made on schedule and in accordance with your agreements with the personnel
- The payments are done accurately and follow local legislation.
- All payroll documentation is in order.
Payroll service providers are exclusively in charge of making payroll payments to your employees. Some individuals wrongly assume that outsourcing payroll services include HR services that assist you in hiring new employees, but this is not the case. Human resources can be outsourced to a different business, and while some organisations provide both, a payroll provider solely manages your payroll processing.
Who Needs Payroll Outsourcing?
More and more companies today are expanding their hiring outside of their home base, thanks to remote working and better connectivity. But at the same time, business managers carry a huge responsibility of ensuring their employees are compensated right and payroll compliance ensured according to local regulations.
Thus, payroll outsourcing can make sense to these types of businesses with small scattered teams especially if they partner up with a service provider that has multiple operation bases in other key locations.
Payroll outsourcing can also be justified for companies that are downsizing due to changes in work and departmental priorities. The same can be said for businesses that rely on seasonal employment such as those in tourism, agriculture, and logistics.
Lastly, payroll outsourcing can be relevant for businesses of any industry who want to focus more on managing their current talent and improving their workforce. They may outsource payroll to professionals while developing key talents to grow and expand their business according to their priority.
Why Outsource Payroll?
Payroll processing may be difficult and time-consuming. There are a lot of legal obligations, which could spell substantial consequences for getting things wrong. For these reasons, many business owners would rather leave it to the professionals who are kept up-to-date with the latest statutory legislation and best practices. It provides them with more time and more peace of mind.
Furthermore, some companies find it cost-efficient to outsource payroll compared to hiring a full in-house team. Recruitment, training, and retention of internal payroll teams can be time-consuming.
Outsourcing allows companies to meet payroll obligations to their staff in a timely manner. It also removes risks of lack of internal resources to process payroll due to resignation or urgent leaves. Your payroll information is also protected by strict data protection and confidentiality protocols.
How does Outsourcing Payroll Services Work?
You should be aware that if you hire a third-party service provider, you will be required to disclose your employees’ information to them. Hence, you should always engage a reliable service provider with good internal controls, policies and procedures.
The payroll agency may require the following employee information:
- Personal information
- Pay rate
- Job title
- Hire date
- Type of contract etc.
If your employees use time cards or time-tracking software (for remote workers) to log their working hours, the payroll provider may require such information as well in order to appropriately compute payments and distribute them via payroll checks or direct deposits.
Payroll service providers may also manage payroll taxes and ensure that you comply with all local tax rules, regardless of where your employees are from. Keeping this in mind, you may be required to produce special tax forms as well as other important information on your employees, such as their social security numbers or Income Tax Identification Numbers.
What Can I Expect from a Payroll Outsourcing Service Provider?
These are some of the typical steps included by a payroll service provider:
- Setting Up & Onboarding
Giving all relevant information to the chosen payroll firm. You must confirm the pay rate and working hours for each employee.
- Timesheet Submission
The payroll provider will require the number of hours worked for each employee in order to enter the information into their software and compute earnings and salaries. You might need to double-check the information for them.
- Gross Pay Calculation
If needed, the payroll provider will handle pre and post-tax deductions. These can include things like taxes, child support, employment perks, and so on.
- Net Pay Calculation
The payroll service provider can send bank files, make deposits or send cheques to your employees, as well as make other essential payments.
- The Reporting Period
As the business owner, you will receive payroll reports for each cycle.
What are My Options to Handle Payroll?
A lot of organisations have already experienced considerable changes since the start of the new decade in 2020. More and more of them are outsourcing payroll for a variety of reasons and advantages. The global payroll outsourcing services market is expected to grow to almost 6% by 2025. There are now more choices for businesses to decide how they will manage their HR & payroll.
For now, you can consider these options:
- Outsourcing Payroll to a Professional Partner
Payroll outsourcing is one of the most popular ways to help businesses lighten the load. One of the key advantages you would get is the extensive knowledge these HR specialists possess, while guaranteeing compliance for enterprises.
- Hiring a PEO (Professional Employer Organisation)
A PEO provides a full-fledged HR service, typically for SMEs. Since they will handle everything in HR, including payroll and taxes, these firms normally cost more than an average payroll firm.
- Subscribing to a Payroll Software
Utilising payroll software to manage employees and payroll may seem easy and cost-efficient. But it does require some effort on your part to ensure the accuracy and timeliness of payroll data.
- Hiring a Contract Accountant
Hiring a contract worker could assist small firms since it requires a shorter time commitment. However, payroll should be treated as a continuous process. There should be a sustainable workflow to ensure your payroll can go on without a hitch.
It generally boils down to what is most efficient and cost-effective for your company when it comes to payroll outsourcing. Before making a selection, do some research and examine your company’s needs and demands. You’ll spend less time worrying about payroll and more time doing what you do best – operating and developing your business – if you choose the appropriate supplier.
Ledgen Group is a reliable partner for payroll and HR services in Singapore, Malaysia and Hong Kong. Our team delivers excellence from small to very large enterprises with accurate, timely payroll services. We have helped clients avoid costly errors and even implemented payroll technology to support the digital transformation of work and the workforce. Connect with us and explore how we can help.