In this article, I want to explore what Payroll outsourcing is and help you determine if it is a viable choice for your business.
What is Payroll Outsourcing?
Payroll Outsourcing is when a business entrusts some or all payroll processes to a third party.
The third-party service provider typically ensures timeous employee payslips, tax reporting and compliance, data security, data maintenance, and claims processing.
When a business outsources its payroll, they entrust the third party to maintain the company’s tax compliance and to manage employee and company data securely.
What is Payroll?
Payroll is the compensation of your human resources. Payroll includes keeping records of, reporting on, and processing employees’ allowances, deductions, company contributions, and benefits. For instance, tax, SDL, and UIF are reported to relevant compliance bodies on behalf of the employees and company.
Why Outsource Payroll?
By outsourcing your payroll, you can streamline your business’s focus and growth, helping you serve more clients and do it with more attention.
The Reason Payroll outsourcing can do this is because it:
Top 7 Reasons Why Companies are Outsourcing Payroll – ReyPath
1. Saves Time
Processing payroll is not an easy task, and it can take a lot of time to keep track of benefits, deductions, garnishees, terminations, and leave to name a few.
2. Increases Confidentiality and Security
Payroll processing requires your most trustworthy resources. The payroll system handles both personal employee information and company financial data. Risking misuse of this information is never an option; the abuse of this access can be devastating to your company. Such cases include identity theft, embezzlement of funds, and data tampering for personal gain.
3. Increases Risk Mitigation by ensuring compliance
Government rules and regulations are constantly changing. These laws make it stressful for any business owner or employee to try and keep up to date with all the rules and regulations governing payroll and its processing.
4. Eliminates Infrastructure and Maintenance Costs
To effectively run payroll in-house, you will need hardware, licensed software, and additional backup resources. Once you have attained all these, you will also need to allocate resources to maintain the infrastructure.
5. Avoids the loss of Payroll Expertise
Imagine receiving notice that the employee who runs the in-house payroll falls ill or cannot perform their duties.
6. Reduces Paperwork
Save time and paper with less paperwork. As well as reduce the risk of leaked information.
7. Reduces the Hassle spent on Legalities
A payroll specialist is dedicated to being an expert in payroll management and is committed to knowing and understanding all laws regarding payroll. These are legal expertise that few businesses can match.
With such an extensive list of benefits, it’s become simple to see why multiple studies found that the number of companies outsourcing is exponentially increasing.
Why Not Outsource Payroll?
You may not want to outsource if any of the following is a deterrent for you.
• The Payroll service provider has access to your employees’ data such as name, surname, address, email, ID, and tax number.
• Your payroll service provider may have different work times to your business and can therefore be difficult to contact at times.
• Your Payroll service provider doesn’t work in your offices, but perhaps he may be willing per arrangement.
When to Outsource Payroll?
If you are not 100% confident that your payroll is being handled correctly, that is when you should consider outsourcing your payroll.
This may be evident in the following examples:
• Payslips are consistently being processed close to the deadline or late.
• Your in-house payroll needs to make use of external assistance from consultants consistently.
• If you are receiving unexplainable tax payment requests.
• If you receive any tax penalties due to the fault of your payroll expertise
• If you are unable to keep up with changing employment regulations
• If your Payroll Software does not comply with the necessary privacy laws and or struggles to keep up to date with legislation changes
• If you are not meeting the requirements set for data security and record-keeping.
Of course, The decision to switch over to outsourcing should be made before issues negatively affect the employees, finances, or operations. However, this is not always the case, and it can incur extra resources to correct the problem.
To decide when to outsource payroll, one should practically identify if all your business needs are being met within the current infrastructure and resources. From there, determine which direction will be best for your business, whether in-house payroll or outsourcing payroll.
Check Payroll Pros and Cons.
How Does Payroll Outsourcing Work?
1. Payroll Input
Payroll input is received
2. Payroll Processing
Payroll input gets processed by a specialized administrator dedicated to your company
3. Payroll Review
Input gets viewed and validated
4. Payroll Adjustments
Required adjustments are made after internal validations
5. Payroll Approval
Final reports of the period’s payroll will be sent to the customer for sign-off
6. Payroll Output
Payment files are generated and declarations are submitted.
Which Functions can be Outsourced?
It is essential to know what your payroll outsourcing includes and what is an included service and an add-on service.
Typically included services would be weekly, fortnightly, and monthly processing of employees’ payslips, access to payslips, application for leave, and standard reporting for tax purposes.
Please view our complete list of services that may be included in a package or priced separately by a payroll service provider.
- Legislative & BCEA Maintenance
- Employee Self Service
- Standard Reporting
- All Statutory Reporting
- Leave Management
- 3rd Party Payments
- Net Payment Files
- General Ledger
- Garnishee Orders
- ETI (Employee Tax Incentive)
- UIF Declarations
- UI19, UI 23, UI27
- Workflow configuration
- Monthly Tax Return (EMP201)
- Mid-Year Submission (EMP501)
- Year-End Submission (EMP501)
- Employment Equity Reporting
- COIDA Reporting
- Skills & Development
- Letters of Good Standing
- Statistics SA
- Application for tax directive
Entrusting a company’s finances to someone else’s hands can be a stressful thought. So once you are ready to engage service providers, keep the following steps in mind:
1. Make a list of your business needs so that you can ensure the payroll service will meet all your needs and also not accept chargeable services you won’t need.
2. Ask businesses in a similar industry or with a similar structure who they use for their payroll.
3. Research those referrals online as well as do your own searching to choose your top 3-5 companies.
4. Engage with your top options, and keep your needs list with you and ask questions that will help you understand what they will expect of you and your HR, as this can affect your business on a monthly basis and especially around submission seasons.
5. Decide on which company to go with and begin the process of onboarding with them, be sure to allocate responsibility for the appropriate payroll processes needed in-house.
Is payroll outsourcing a good idea?
This depends on the needs of the business, as payroll outsourcing has its pros and cons. Payroll outsourcing has been increasing in popularity and promises to increase as the preferred payroll solution.
How much does it cost Outsource Payroll?
There are numerous influences on outsourcing costs as each service provider has its own offerings, which vary from basic payroll features and services to more specialized ones. Beyond this the cost depends on the amount of Payroll Frequency in a month and total number of employees in each frequency.