The explosion of globalization has altered the way we do business, from product procurement to service provision. Technology evolves daily and with its evolution comes new and interesting ways to interact with the world around us – frequently in more cost-effective manners. This global shift has allowed the forward-thinking business executive to access specialized providers of a specific skill at a fraction of the cost. Creating and operating a company-specific HR department can be expensive and downright overwhelming, so it is no surprise that there has been a recent increase in outsourcing this department.
In the 2016 Deloitte Global Outsourcing Survey, the leading reasons for managers to outsource HR functions were, 1) As a cost-cutting measure (59% of respondents), 2) as a core-business focus enabler (57%), 3) as a solution to capability issues. This underscores the wide range of benefits associated with outsourcing HR. In 2021, Deloitte published another survey that told a bit of a different story, but a compelling one nonetheless. The 2021 survey showed that 88% of business owners who pursued cost reduction as a defined objective achieved it. Where you focus, there you prosper.
From defining the optimal hybridity of a workplace to the ideal sourcing of a good or service, there are a multitude of considerations weighing on the minds of today’s business executives. This article is here to help as you may contemplate outsourcing payroll.
How do you know if it’s right for you?
The size of your business can dictate the degree of headache associated with payroll functions, but it can never eliminate them. At a minimum, it requires simple pay-slip calculation and tax compliance, at maximum it requires end-to-end services to an international group of employees.
In 2020 42% of the U.S. workforce became full-time remote workers which is a massive shift in the way that a significant swath of the population approaches work. The pandemic has disrupted every facet of commerce, and with that disruption comes interesting new solutions and benefits.
Benefits of Outsourcing Payroll
Cost-Reduction of an Expensive Division
The most visible advantage of outsourcing payroll is the less dedicated payroll staff you require. The expensive recruitment, onboarding, training, and retention programs are migrated from your organization to a specialist company. This frees up personnel and capital which can then be more effectively used within the organization.
Focus Resources on Core Business Activities
Payroll functions usually aren’t revenue drivers of a business. However, the incorrect completion of these functions can lead to massive losses and potential litigation. Ultimately, by outsourcing payroll, you free yourself up to focus on the revenue-generating aspects of your business rather than spending time and resources on the necessary -but mundane- pursuit of compliance.
Access to Advanced Technology and Expertise
Taxes and laws are constantly shifting, usually for the betterment of society. However, keeping up with these annual changes domestically and internationally is a full-time job. Indeed, many have made it their full-time job by specializing in payroll and other HR functions. By focusing on this singular aspect of the business world, these professionals keep up to date with new and emerging technologies that benefit both their work and yours.
Cloud computing and deep systems integration is illuminating a new way to do business – ways that benefit the employer, the employee, and the bottom line. Increased availability of information within your organization can have several benefits, but the mere replication of information in a specialist company server can be a lifeline in the face of disaster.
Reduce Risks and Errors
But grid failures and natural disasters aren’t the only threat to your payroll information. The most recurrent threat is simple operator error. Input mismatches are common, so correctly identifying them is important. By transitioning to a paperless system, the audit trail is tidied up, which is to say that instances of innocent error and malicious fraud are more easily traced if they are present. When you reduce your reliance on a single HR staff member, you remove the potential for fraud and simultaneously unlock new fraud prevention potentials. The time freed by outsourcing payroll can be used to audit current systems, and even your third party, which makes the whole process substantially more efficient.
Implementing an Outsourced Payroll System
Define Your Needs
After weighing the pros and cons of outsourcing payroll, you should be able to identify your needs and begin to prioritize them. Only rarely will companies opt for full outsourcing of payroll and HR functions. Usually, it is a blend that focuses on which processes will be most beneficial if outsourced.
Conduct Research & Evaluate Providers
Once you know your priorities you can engage more effectively with service providers. You’ll need to be clear about what is essential and what is negotiable. Picking the right provider can be time-consuming, but the benefit is worthwhile. Remain consistent with your needs and explore all options. Once you’re sure you understand the companies and their offerings, make your selection.
Select and Transition
You’ve found the right group! They’ve proven that they understand your business and the laws which govern it. They know what you need and have demonstrated their ability to provide it. They have met your needs on pricing and growth potential. So now what happens?
Now comes the transition phase, which can prove challenging and demanding.
Communication is worth more than gold at this stage. The provider should have a timeline of the transition process and a detailed plan regarding what duties will shift and how. Ask questions and be present in this phase. Ensure your understanding by getting involved. Doing so will increase the efficacy of the transition.
Ten Tips for Outsourcing Payroll
- Have a clear understanding of what you do and do not want to outsource.
- Start before you have to. It takes time and effort to select a provider, so provide yourself plenty of time to make the right choice.
- See the product in action. They might have a demo; they might showcase the functionality of a service. Whatever the case is, seeing your product before purchase is essential.
- Align values. Make sure the company you go with understands your core ethical concerns and acts in a way that is complementary to your business.
- Be active in your pursuit. Ask questions, seek to understand. The more effort you put in, the better the results.
- Keep your expectations realistic. While there are significant benefits of outsourcing, it is not a cure-all remedy. Understand what it can and cannot do.
- Allow buffer time for the decision-making process. Sometimes management can change direction suddenly, so being open to those changes and accommodating them can keep you from feeling overwhelmed
- Design and share a detailed process. This will show you how it works and will help you communicate it to interested parties.
- Share this pursuit with any existing HR employees. It is important that they feel they’re a part of this transition and not be undercut by it.
- Shoulder the responsibility. These things take time and effort for all parties. Accept responsibility and share it to ensure longevity.
The world is changing at an amazing clip. Technology and innovation are paving the way for the future and we are seeing a totally new reality emerging. Within this new reality are interesting ways to provide and receive better service at lower costs. There are a host of ways to achieve this within your business, especially within your HR department. With all the specialists you have access to in this brave new world, it may be worth considering outsourcing payroll to them. Contact us today to learn more about our payroll solutions.