Finance November 21, 2014 Last updated January 11th, 2022 1,792 Reads share

Payroll: Outsource Or Keep In-House?

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Payroll is a business critical function in any organisation and it is also one of their biggest expenses. Despite this, it is often not given due consideration – that is until something triggers the need for change. This is something we see time and time again – however, organizations shouldn’t wait for a crisis, such as a missed payroll date, before reviewing their payroll function; this is something that should be reviewed as an overall risk assessment with in any organization regardless of size.

There are basically two choices when it comes to payroll. To keep it in-house or to outsource it – this is a question that many managers deliberate over.

Running Your Payroll In-House

For some organisations, running your payroll in- house is an obvious and right choice – you pay a fixed annual fee for your payroll software and you then have the flexibility to run your payroll when you are ready, make late changes and adjustments – i.e. you are tied to a schedule as with a managed service. In addition employees also have access onsite to a payroll person to answer queries which is often seen as invaluable to staff.

Payroll reporting in software has also become a lot more sophisticated, with many reports now available online, allowing managers easily retrieve and view payroll reports, records and outputs giving greater visibility over their payroll.

However, there are other factors that need to be taken into account if you choose to keep it in-house particularly in relation to cost. Firstly, you need to invest in payroll training to ensure that your payroll is legislatively compliant, equally you need to invest in software upgrades and all the training associated with this to avoid costly hidden errors.

There is also a lengthy list of other variables including turnover of payroll staff, data accuracy errors, utilisation of assets, and risk that all should be considered and when combined can result in an expensive in-house service.

Outsourcing Your Payroll

For many organisations exposing themselves to many of the risks of running a payroll in-house outweighs all of the above benefits. Payroll is complex and has become increasingly so over the past few budgets.   Trying to keep up to date with intricacy of new tax legislation, compliance issues and training is time, hassle and money. For them an outsourced service is an obvious choice.

However, bear in mind, choosing to outsource your payroll does not however mean you can wash your hands with it, it is essential to provide a point of contact for the service provider, and importantly someone who has basic understanding of payroll, the authority to sign off of and make decisions. Clear boundaries also need to be defined from the start regarding roles and responsibilities and a good provider will have this outlined in a detailed service level agreement.

While cost is an important factor when choosing a provider, other areas should also be given equal consideration. Areas to review with any payroll service provider include implementation approaches and well as sample plans to ensure timelines and costs are kept. It is also worth asking about their accuracy rates and how they are measured, the qualifications of payroll staff, disaster recovery plans and compliance. Equally, knowing about their customer care model, customer retention rate and reference sites, will all give a clearer picture and help in the decision making process.

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