Pros/Cons of Outsourcing Payroll

The HR department (or part of it) is often the first area ear-marked for outsourcing. Apparently, throughout most sectors of industry, there is continuing strong support for the outsourcing of HR functions. Payroll in particular is one of the `back office’ functions first considered for farming out. The next time your payroll process comes up for review, you might be faced with a tough decision.

Payroll has traditionally been part of the HR department. However, with its almost total reliance on modern software, it seems logical in some situations to handball it across to the IT department, or outsource it completely. If your company is small to medium sized, and doesn’t have an IT department, you still may find many benefits from outsourcing just like much larger corporations.

Outsourcing Payroll: The Pros

Cost savings

Clearly the first thing to consider is that outsourcing payroll can bring your company many cost savings. These costs are both in quantifiable terms, such as wages, software investment and IT management costs, and in terms of opportunity costs – it frees up more time for the HR area to focus on its core functions.

Flexibility

If your company is growing quickly, your outsourced payroll is much more likely to have the infrastructure and know-how to handle the increased workload. It will also make life easier for you if you have offshore staff or offices.

Cost tracking

When you outsource your payroll you will know exactly how much it is costing you. When payroll is managed internally it is much more difficult to allocate and monitor its costs, and often the costs won’t be tracked at all.

Frees up capital

Outsourcing payroll will generally cost less than setting up an internal payroll process - at least in the short term. This means the capital can be invested in other areas of the company.

Best Practice

Outsourced payroll can deliver the best practice systems, the latest payroll technology and the experts to manage it. It means your company will avoid the direct investment and won’t have to pay for expensive software upgrades and training.

Outsourcing Payroll: The Cons

Many companies that outsource business processes suffer difficulties with it. Typically these difficulties will involve spiralling costs and patchy service quality. Problems occur between the gap of expectations and results. A savvy manager should not believe the hype that can sometimes surround outsourcing, especially when it comes to payroll.

Some problems

It may become difficult to access important employee data in outsourced payroll information systems. For instance, you might want to quickly find out your company’s headcount or payroll tax, and discover that the information will no longer be at your fingertips.

Also many companies instinctively don’t trust others with vital employee information. Furthermore, if payroll mistakes occur, the ability to quickly rectify the situation may be compromised. Payroll is a very sensitive area, and many are not comfortable letting outsiders handle it.