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The pros and cons of payroll outsourcing

Payroll is an important yet time-consuming part of business operations. If your company does not have in-house professionals to handle this task, you can try payroll outsourcing. 

The decision to outsource payroll relies on several factors that present both advantages and disadvantages to each side. 

We’ve listed some things to keep in mind when you’re thinking about whether to explore outsourcing or keep a payroll team in-house.

How does payroll outsourcing work?

Payroll outsourcing involves recruiting a third-party service provider to manage the administrative and compliance tasks that come with computing an employee’s salary. 

The level of services you can outsource varies depending on the firm that you choose to partner with. Some outsourcing firms handle the basic services including:

  • Computing basic salaries
  • Adding overtime pays, night differentials, and holiday pays
  • Tracking the employee’s available leave balances
  • Deducting taxes, benefits, and other contributions
  • Keeping payroll records

Other firms offer extra services such as filing and paying the taxes with the company’s local internal revenue office.

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Delegating the workload to an external team allows the in-house finance officers to focus on more strategic tasks in their organizations. In addition, outsourcing increases business efficiency. 

How does payroll outsourcing work?
How does payroll outsourcing work?

Advantages of payroll outsourcing

Attending payroll tasks demands a great deal of time and expertise from an employee or a whole team. Outsourcing your payroll to a specialist can help your company with the following:

Saves time

Putting together the company’s payroll is a time-consuming process. It includes specific processes such as figuring the amounts of checks and submitting federal tax deposits. 

Data from a Quickbooks Payroll survey revealed that an HR professional or company owner spends almost 5 hours of their time calculating, filing, and paying payroll taxes for each pay period. That figure is just for small businesses.

That means that a large company with more than 100 employees makes the payroll process a full-time task for a team. 

Payroll outsourcing saves business owners a lot of that time. By delegating this task to a service provider, the in-house department can prioritize the development of financial strategies that can strengthen the business’ competitive advantage.

Offers value for your money

Payroll outsourcing helps organizations minimize business expenses by helping your team evaluate visible and hidden costs around your overall payroll management. 

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Labor costs are also generally lower when you outsource offshore. This means you can hire more qualified payroll specialists for a lower fee. 

In addition to the reduction of the overhead costs, outsourcing helps you save on payroll software expenses, training costs, support, as well as compliance-related expenditures in your business.

Guaranteed compliance

Aside from handling employee salaries, a reputable payroll outsourcing provider can also perform tax filings and other payments on your behalf. 

​​Most outsourcing firms are on top of labor codes and legislation – making it easier for employers to remain compliant. 

They know the entire payroll process and can help you with related laws and regulations.

Advantages of payroll outsourcing
Advantages of payroll outsourcing

Disadvantages of payroll outsourcing

Aside from benefits, there are also certain risks in payroll outsourcing. If you choose to hire a service provider, you have to be mindful of these issues while considering your payroll partners.

Loss of control

Handing over payroll operations to a third-party provider possibly limits your control over certain processes and data access. It means that you may lose control over some elements of your business, such as:

  • Instant access to payroll 
  • Checking it when you want to or add anything that is missing

If your main worry is this, then you need to look for a well-organized outsourcing provider that can ensure transparency for their clients. 

In addition, service providers that are committed and focused on their payroll services make them less likely to generate data loss payment delays and fines.

Confidentiality threats

Outsourcing requires permitting another company to access your team’s private information. 

However, sending all of your sensitive employee data off-site can cause security and confidentiality concerns. You are consciously putting your company’s data at risk as hackers are aware that outsourcers are a rich source of interesting information.

It is a known outsourcing misconception that data is no longer secured if it is not kept within the company. 

The security threat that exists in sharing payroll information highlights the importance of finding an outsourcing provider that has a secure network infrastructure and data privacy policies in case of data breach and identity theft in your payroll operations. 

Difficult coordination 

Though the whole payroll outsourcing process saves companies time and money, scheduling meetings to coordinate certain tasks and activities can also be time-consuming. 

Client companies also have to provide ongoing support to ensure the outsource provider achieves the desired results.

In situations where an error has been made, going through a third-party service provider can mean a long wait before the problem is fixed. This may leave your in-house team frustrated with the situation.

Disadvantages of payroll outsourcing
Disadvantages of payroll outsourcing

Create an effective payroll process with Staff Domain

Choosing the right payroll outsourcing provider is key to ensuring the success of your payroll outsourcing. 

Fortunately, you can gain the payroll capabilities your business needs by trusting a highly qualified team from Staff Domain. This Philippine-based outsourcing agency will assist you in finding employees that will efficiently and accurately manage your payroll.

More than just cost-saving, using Staff Domain’s offshore payroll outsourcing services means that your business stays compliant and on top of all relevant labor legislations.

Start your payroll outsourcing journey now with Staff Domain!

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About OA

Outsource Accelerator is the trusted source of independent information, advisory and expert implementation of Business Process Outsourcing (BPO).

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Outsource Accelerator offers the world’s leading aggregator marketplace for outsourcing. It specifically provides the conduit between world-leading outsourcing suppliers and the businesses – clients – across the globe.

The Outsource Accelerator website has over 5,000 articles, 350+ podcast episodes, and a comprehensive directory with 900+ BPO companies… all designed to make it easier for clients to learn about – and engage with – outsourcing.

About Derek Gallimore

Derek Gallimore has been in business for 20 years, outsourcing for over eight years, and has been living in Manila (the heart of global outsourcing) since 2014. Derek is the founder and CEO of Outsource Accelerator, and is regarded as a leading expert on all things outsourcing.