Payroll outsourcing generally includes all activities related to payroll processing and other payroll-related functions. Payroll processing includes several activities like maintaining employee records, calculating employee salary and wages, computing and adding bonuses, distributing payroll, generating payroll related reports and complying with the taxation laws of the government.
Payroll of a company refers to the payment of employees. It encompasses the sum of all the financial records of salaries for an employee, bonuses, taxes as well as deductions. From an accounting perspective, a payroll refers to the amount paid to the employees for the services rendered by them for a certain period of time.
Payroll is simply the use of a service provider to handle administrative and compliance functions of paying employees. It is important to note that payroll service are only that, and do not offer a local employer of record for the foreign company.
What Exactly is Payroll Outsourcing?
- Frees up both time and resources allowing businesses to focus more on core tasks.
- It reduces costs and risks involved.
- Gives businesses access to the latest technology and expertise to perform payroll functions well.
Payroll outsourcing in a business means engaging an external party to handle all payroll related activities. Outsourcing of payroll functions is generally done to reduce cost and save time required to deal with financial tasks related to a payroll. Hiring an external firm to handle payroll activities means a business organization can do away with the need to hire and train a large in-house payroll staff, buy appropriate software package for payroll functions and remain constantly updated about complicated tax regulations.
Outsourcing of payroll activities is beneficial for all kinds of businesses, regardless of the organization having a large payroll or a mid-range or small.
Outsourced payroll solution provide increased accuracy when compared to in – house payroll management as it gets prepared ,analysed and evaluated by qualified professionals. Frees up both time and resources allowing businesses to focus more on core tasks. It reduced costs and risk involved.
Here is the list of advantages for outsourcing payroll services.
Time Saving
Handling payroll function is no cake-walk. Payroll department has to look into several intricate and minutest of details such as new hires, terminations and benefit deductions to name a few. Plus, any changes in central and state regulations just makes it even more complicated.
Managing payroll internally is quite a taxing task and each year organizations doing so end up consuming precious labor hours in preparing W2s. Outsourcing payroll accounting to a professional firm unburdens you from worrying about these
Outsourcing payroll accounting to a professional firm unburdens you from worrying about these time-consuming tasks requiring 100% precision. It also frees up your HR department’s time which can be utilized for core functions which are strategically more important for your business.
Strategic resource management is one of the reasons, organizations prefer to outsource payroll accounting, which gives them a competitive edge as well. Simply because payroll is not a one time thing. One payroll period follows another and the working hours in between never seem to be sufficient.
Avoid Internal Revenue Services (IRS) Penalties
Each year numerous small and big businesses end up paying heavy IRS penalties. According to the Internal Revenue Service department, on an average the penalty amount paid because of incorrect or delayed filings . Payroll mistakes are not to be taken lightly, because while this can upset your employees, filings with omissions or incorrect details raises a red flag. These mistakes lead to undesirable events such as heavy penalties and even audits.
Besides, it’s almost impossible for a small enterprise to be on the ball with the latest changes in central and state tax regulations.
Since professional providers have to stay abreast with all central and state regulations all the time, they can manage calculations and filings with utmost ease at a very nominal cost which if you managed otherwise, would cost you several labor hours and penalties.
Cost Reduction
As a business you can save several precious rupees by outsourcing your payroll function. This is particularly true if you happen to be a small or medium sized enterprise. Established enterprises with a larger work-force can afford to have an in-house payroll department, but if you are a small business with limited resources and small work-force, you must seriously consider outsourcing your payroll function to a professional and reputed payroll service provider.
If you compare the expenditure of doing payroll in-house to outsourcing it to a professional payroll service provider, you will realize that a good amount of money can be saved. Imagine the activities your in-house payroll executive will have to take care of and the amount you will end up spending.
Few of the activities are payroll calculation, signing and distribution of checks, payroll software purchase price, calculation of taxes and returns, reporting of new hires and terminations and training & support.
Since time is money, as a small business owner or start-up, it’s costlier for you. This is the reason that many small and middle sized businesses make a smart move by outsourcing their payroll function to a payroll firm.
Increased Security
Payroll processing is quite complex a process which involves loads of monitoring due to inherent risks involved. Theft of personal information can cost you a fortune. Yes, your employees are trustworthy; however, it requires extensive monitoring and security.
Without appropriate measures of security, tampering with company information and abstraction of funds may come about which again can incur pretty heavy losses. Payroll service providers are liable to have such measures in place. With state of the art technologies in place, timely alerts are raised in case of any payroll fraud which reduces the need of 24×7 manual intervention.
Data storage and protection measures, multiple server locations and backup facility ward off any potential possibility of payroll fraud.
Providers usually invest heavy amounts of money to have such avant-garde measures in place which is not possible for you to have in-house if you are a small business. Manual bookkeeping cannot help prevent fraudulent activities like these technological systems can do. Hence, outsourcing payroll function to a vendor is a smart move .
Professional Team Of Experts
Outsourcing payroll accounting gives you access to professional team of experts who study and research a lot about government regulations. Renowned payroll service provider agencies have an experienced team of experts who can manage benefits and deductions in payroll system.
Besides, workers compensation, addressing employees concerns and human resource in general are taken care of pretty well by the team which is an added advantage for you as a business.
While searching for a good payroll service provider, you should also find out if they have a 401k plan to offer. These transactions are an inextricable part of system and hence the inclusion of the plan will take you a long way.
No Infrastructure or Maintenance Costs
In-house payroll management means investing in paid software plus upgrade costs. Since you need the latest tax tables installed on your systems all the time, that’s an extra time and money consuming strenuous activity, you can’t evade; however, by outsourcing you can say goodbye to these maintenance and infrastructure cost woes with utmost ease.
Also, as discussed earlier it also eliminates the possibility of incorrect filings leading to penalties.
Direct Bank Deposit
Employees working in small scale companies always want direct bank deposits to be made; however, for small companies it is quite difficult to do so.
They have to roll out paper checks every month and also have to manage plenty of paper work to keep a record of rolled out payroll checks. Outsourcing payroll allows you to eliminate plenty of paper work and also eliminates the possibility of any fraud. It’s also less time consuming and error free which makes life easy for small enterprises.
No Risk Of Losing In-House Payroll Employee
Outsourcing payroll functionality will help you streamline payroll process without much complication. Also, an overworked payroll employee doing multi-tasking may quit his/her job anytime and walk out with the knowledge acquired during the tenure.
The risk always looms large particularly on small businesses relying on an employee to manage multiple responsibilities. Outsourcing payroll accounting to an outsourcing service provider relieves you from this stress. Also, output in terms of quality and accuracy will always justify your investment giving you ROI manifold.
Robust Human Resource Management System
Having a robust HRM system is essential for any enterprise today. Outsourcing your payroll accounting equips you with a robust human resource management system offering faster processing of information and better employee management than an in-house manual human resource management system.
Choosing right payroll service provider can give your firm a competitive edge.
A Payroll Service Provider Includes :
A payroll service provider is a company that automatically processes payroll calculations, payroll tax statements, year-end taxes and more. Many employers prefer to use payroll service providers to help ensure their employees and taxes are paid accurately and on-time.
The payroll outsourcing services have provision of products automated as a combination based on human intelligence and artificial intelligence products to offer tailor-made solutions that cater to the unique needs of every client, irrespective of the size or stage they are in.
Outsourced payroll services providers have a team of experts doing things for you. This will ensure accuracy in processing large payroll.
Saves Time:
In-house payroll processing is a time-consuming method. Payroll processing tasks such as maintaining records of benefit deduction, fresh hire, and termination and central as well as state regulatory changes are frustrating tasks. Every year a large number of hours are wasted in preparing and sending wage and tax statements. Outsourced Payroll Companies lets employers focus on their key tasks and frees up the time of the business owners as all the tasks will be taken care of by outsourcing payroll companies.
Hassle-Free:
You do not need to bother about remembering deadlines or whether you have processed the payroll on time. Payroll outsourcing companies will do all this for you. Also, the amounts to be paid towards the liabilities too will be informed to you. It gets tough as an employer to make and keep tracks of deductions .In this case, a provider can look after this for you. With the total physical response unrelentingly focusing on pensions, to have someone to take care of this admin function would be good.
Human Relations:
Payroll is not just about pay as you earn and payments. There are welfare benefits too which have become interlinked as the department for work and pension does monitor things via RTI. Not having one’s PAN and adhar linked to the payroll can lead to misreporting of information and can stop or reduce an employee’s benefit payments. Considering this it is for the employee’s benefit to have things treated from their perspective. Also, for queries regarding holidays whom better to approach than your payroll provider?
Queries:
Your employees might wonder why you have made a deduction or why the amounts of holiday pay or gross pay do not add up to what they have computed. Well, in such cases you could simply forward their queries to your payroll outsourcing company.
Audits:
If you have a surprise national minimum wages compliance check or any such attentions ,it is always worth your weight in gold to know that you were doing things as you should have. Negative publicity on the accounts front or needless penalties or tribunal hearings are not things that anyone wants.
Statutory Payments:
You can reclaim 103% on your symmetric multiprocessing payments if you fall in the right category. However, the right reporting and information are required. Also, you need to keep records. The same applies to Statutory sick pay in which you can even make reclaims for COVID 19 cases. Thus, it pays to be well informed by an expert.
Compliance Issues:
There are frequent updates and changes that occur in the legislation. This makes things difficult for most employers to keep up with. For instance, the personal allowance for the year 2020-21 is the same as the tax year 2019-20. Thus, it makes sense to have someone else tackling these things for you.
Software:
You do not need to invest in expensive payroll software or bother about printing payslips as your outsourced payroll provider will do this for you.
Outsourcing Payroll Services Disadvantages:
You cannot merely hand someone the work of processing payroll and not co-ordinate with them. You need to treat your payroll provider like your inhouse employee and give them all the necessary help and support so that you get what you want as you want it.
Deadlines:
Be realistic as to deadlines as just providing information an hour ago and expecting your payroll to be wrapped up within a few hours could be detrimental. Pressure might lead to possible bits of information being left out so give yourself time to collect all the information before sending and ensure you have a glance at what you receive.
Therefore, there are more pros than cons of outsourcing payroll services however, just because someone is handling your payroll does not mean that you can completely abstain from responsibilities in relation to handling your payroll. Outsourced payroll services will help in saving your time and money but you need to bear in mind that there can be a few teething problems that can be easily dealt with.
Outsourcing payroll is a limited, administrative foreign employment solution, and does not guarantee compliance with taxation, immigration or labor laws in the host country. The international payroll provider does not offer the foreign company a local employment entity, so incorporation is still required along with registration and other compliance measures.
Other practical disadvantages include losing control of compensation and employee data, security issues and lack of service quality or timely reporting. These can be offset by thorough research of the payroll providers in the country and selecting the best firm available.
Predicted growth of payroll outsourcing market in India
Outsourcing payroll is a limited, administrative foreign employment solution, and does not guarantee compliance with taxation, immigration or labor laws in the host country. The international payroll provider does not offer the foreign company a local employment entity, so incorporation is still required along with registration and other compliance measures.
Other practical disadvantages include losing control of compensation and employee data, security issues and lack of service quality or timely reporting. These can be offset by thorough research of the payroll providers in the country and selecting the best firm available.
Payroll has evolved into more than merely processing payslips. This means that just having your employees paid on time is no longer enough. You need to see that you generate and submit the necessary details and make the correct pay as you earn payments on time. Because of these factors, many prefer to outsource payroll services. But is that something which is going to work for you? Let’s discuss things.
The global payroll solutions market is expanding at a very good pace. It is predicted that the global market for payroll outsourcing will reach USD 162 billion by the end of 2021. India being a big player in the outsourcing market is also following the global trend.
Payroll outsourcing is a major player in the Indian outsourcing market. With the continuous growth in the payroll outsourcing industry in India, the payroll solutions industry is also expanding in a big way. According to a recent report the Indian payroll outsourcing market will witness a marked growth in the coming years. The market is predicted to increase by almost 50 per cent in the next five years.
Companies and organizations today are looking for time saving and cost effective measures to run their business smoothly. They are opting for cost reduction at various levels and focusing on outsourcing certain jobs that will provide them with the opportunity to focus on core issues of the business single-mindedly. Payroll is one such area that is generally outsourced to reduce the complexities of having to deal with payroll related activities in-house.
Another thing to note is that with the growth of the payroll solution market in India new players are entering the arena. This will mean an increase in competition, which will result in improvement in quality of outsourced payroll activities.
Thanks for Reading.
Rupa Banerjee – Payroll Editor
Email : rupabanerjee70@gmail.com