Payroll is a necessity for organizations. If a business doesn’t pay its staff accurately or on time, employees will quickly become disaffected. It is, however, a technical function and, as such, it requires specialist expertise. Often, organizations don’t want that expertise in-house. They would rather have an external specialist to deliver it for them.
When running a company, time is money, and as businesses grow and employee numbers increase, unfortunately so does the time spent on managing payroll. Outsourcing payroll can potentially save time, remove unnecessary workload, and complexity. In addition, it can prevent compliance headaches. Processing payroll in-house can be costly as companies have to spend money on training and other resources to ensure they meet all legal obligations. Human errors are more likely to happen when operating payroll in-house as opposed to outsourcing it; payroll outsourcing providers keep on top of the latest processes and procedures (such as the recent IR35 changes), helping businesses avoid any potential penalties for even the smallest mistakes.
As payroll records include a lot of sensitive information on both the business and its employees, quality outsourced payroll providers help organizations stay on top of the data security game. The global average cost of a data breach amounts to $3.86 million, but as well as the obvious financial losses, it often costs companies their customers, reputation, and puts them at a competitive disadvantage. With secure cloud-based servers and cutting-edge encryptions, businesses can rest assured their data is safer in the hands of their providers.
When outsourcing payroll, it is important organizations choose a partner with the scale to deliver the expertise needed enterprise-wide, especially if the business is planning to expand across multiple geographies. A specialist outsourced partner could also bring economies of scale to the business, while at the same time enabling it to focus on its core commercial requirements rather than worrying about payroll itself.
If the business makes the wrong choice, though, it can bring commercial risk. If it gets it badly wrong and its employees are not paid correctly, it is likely to disenfranchise the workforce, employee productivity and engagement will fall, and there may even be negative headlines in the press which can harm business’ reputation. That’s why the precise approach taken to payroll is so important. It is not about outsourcing it per se, it is more about businesses approaching that outsourcing in the right way. Services delivered on top of pre-existing cloud payroll implementations will typically deliver greater flexibility than the traditional outsourced payroll service.
The latter can offer low cost in terms of price per payslip but there are also downsides. If, for example, the business opts for a solution from a single product payroll specialist vendor, if they leave or want a change in their contract, the business will be to a large extent restricted to what the provider has to offer because they control the payroll system and the service delivery.
To use a sporting analogy if the provider decides to stop for any reason, it can simply ‘pick up its ball and coats’ and walk away with the pitch, leaving the business without any payroll function. If the business needs commercial flexibility, it is effectively at the mercy of the provider being flexible in its commercial arrangements to be able to carry on running that payroll service. That’s because most outsourced payroll organizations effectively take away the payroll system when their contract ends. Often, their service and their product are one, so when they go, their product goes.
Product and service combined
This risk can be mitigated if the business considers a single cloud-based HR and payroll solution and then opts for service on top of that. Both service provision and technical provision are important here. The platform is as important as the service organizations get on top of it because it is the platform that gives the businesses that use it that commercial flexibility.
Single HR and payroll solutions allow the data to be entered once and straight through to the payroll system. It is more likely to be right the first time than when there are separate systems. Such a platform also allows the end business flexibility of commercial service. That way, if it later decides to bring payroll in-house and/or move away from the service provider, the HR/payroll system remains in place and the business can still pay its employees. In other words, it’s game on rather than game over.
That commercial flexibility in service provision is likely to be the way the market will head in the future. At the moment, it remains dominated by providers offering a service and a product. And the product is taken away when the service ends. Very few providers are offering a commercial framework which allows business to move up and down the scale: from fully outsourced, to partially, to fully in-house, and importantly as and when required.
Beyond all this, of course, the best providers can also optimize such products for customers. They can, for instance, help customers navigate areas of payroll where they might still be dogged by off-system processes and admin-heavy manual workarounds, and deliver the expert consultancy needed to drive payroll improvements.
In partnership with the organizations themselves, providers can help identify areas for improvement and work alongside businesses to deliver enhanced operational excellence. This in turn can help empower internal payroll teams to challenge processes, better identify problems and remove them more efficiently, as well as drive further innovation. It is an approach that moves beyond the benefits of outsourcing (and even outsourcing to a fully integrated flexible HR and payroll solution) to deliver still greater flexibility and operational excellence to the end business itself.
Charles Courquin, director, Symatrix