Payroll Software vs Payroll Outsourcing: Which is Right for Your Business?
At certain junctures of your business, there will be a time where you need to scale some operations like payroll. As one of the most vital parts of a company, payroll has to function reliably and accurately. For it to scale effectively, you have a few options to ensure that this part of the business can keep functioning without a hitch.
Hiring an extra hand would be an apparent thing to do, but there might be issues with budget, lack of training, or simply not the best solution for the company. Hence, there are two options to consider. You can either subscribe to a payroll software online or outsource payroll to a corporate service provider.
Read more: Hidden Risks of In-House Payroll
In this article, we will help you understand what each option entails and what factors to consider before deciding. Let’s start by looking at each one in more detail:
What is Payroll Software?
A payroll software is a computer program or application that organises, maintains, and automates payroll processes such as salary payments, pension fund, tax and other statutory deductions. It can be done in-house using proprietary technology developed by the company itself. For most companies though, off-the-shelf or readily available cloud-based payroll software are more commonly used.
Cloud-based software or software-as-a-service (SaaS) is popular especially among small to medium businesses to do payroll since it eliminates the need for maintaining physical servers, its respective networking hardware and firewalls.
Advantages of Payroll Software:
You have control over all the details and raw data of running payroll, taxes, activity logs and reports. A payroll software can gather and store payroll data very reliably these days.
It generally costs much less to subscribe to a basic payroll package online than to develop in-house or outsource.
Payroll software can calculate and generate reports in an instance.
Limitations of Payroll Software:
- Learning Curve
Some payroll software have steep learning curves and it takes a while to navigate around with confidence. The user must also have ample payroll knowledge to make sure payroll data is input correctly to avoid wrongful calculations.
- Prone to Error
To a certain degree, payroll software cannot verify whether the input data is correct or otherwise. There is no logical check capability to verify the payroll reports before submitting the net pay, tax, or pension reports to respective stakeholders. Cases of simple and extreme errors have led to unnecessary harsh penalties and blacklisting respectively.
- Prone to Downtime
Servers and systems are susceptible to IT downtimes that can last from a few hours to days. When it happens, you will have no control over it and your whole payroll process management will be derailed, causing demoralising late salary crediting into the staff’s bank accounts.
- Upfront Investment
Some software and SaaS providers charge a high fee that needs up to one year upfront payment. Besides that, their service packages might not be customisable to fit into your unique business needs and this premise is especially true for all cloud based systems.
What is Payroll Outsourcing?
Payroll outsourcing is when your company enlist the services of a third party provider to manage and support your payroll. These outsourcing providers can usually help with administrative and compliance functions as well. Depending on what you need done, outsourced payroll specialists are able to either take over your entire payroll department or just do part of the job.
Advantages of outsourcing:
- Saves Time
No more manual work or data entry. By outsourcing, you free up your team’s time and resources to refocus on other necessary tasks.
- Compliance Guaranteed
Unlike payroll software, outsourcing ensures that your payroll data is accurate and compliant to local regulations. Outsourced specialists may also help you answer queries and requests from the authorities with the right information.
- Secured Data
Payroll outsourcing service providers would know the best practices to ensure data security of your company and employee information. In the event of a downtime, they are able to support and troubleshoot so your company’s payroll can still be done in-time via their well established contingency SOPs.
- Access to Add-on Services
A lot of payroll services also provide other services such as human resource, tax and accounting. This can be helpful when you need more hands on deck later on. Rather than researching and using multitudes of software, you can outsource to just one vendor for different projects or service support.
Limitations of outsourcing:
Depending on the services and the degree of customisation offered, some outsourcing services incur costs that can be higher than an average payroll software.
- Less control
With a hands-off approach via outsourcing, it makes sense that less control is exercised. Unlike payroll software where reports can be accessed quickly, it might take a while for the same report to be handed over to you by the outsourced provider. On the plus side, all the reports given by the outsourced payroll service would usually be accurate and subsequently verified by the client’s HR point of contact which forms an excellent check and balance internal control procedure.
Which One is Right for You?
Whether it is done via outsourcing or software, it is undeniable that payroll is part and parcel of your business. A lot of stakeholders depend on payroll to be done right and timely. Therefore, you need to work with a reliable solution and opt for a provider that can meet your needs.
Payroll software could be the best solution for small and medium businesses that might need help with one or two payroll tasks to be automated, such as salary payments and claims verifications.
On the other hand, businesses can opt for payroll outsourcing when there are a lot of tasks that need coordination and proper handling. These outsourced tasks range in complexity from salary payments, claims reimbursements, to income tax submissions, employee provident fund, and pension schemes.
Payroll outsource also makes sense if the company operates cross-border and has no payroll department in every office branch. Through outsourcing, there will be one dedicated centralised payroll partner that the whole organisation can rely on for accurate and timely transactions.
Both payroll software and payroll outsourcing seeks to help you lighten the load of your payroll duties. But by outsourcing, a lot more tasks can be handled and managed with better efficiency and reliability. Talk to our payroll and HR experts at Ledgen Group to see how outsourcing can benefit your organisation.
With presence in multiple Asian regions, Ledgen has a great track record of solving client’s payroll and HR issues and providing value-added services.