Business consultants have long advocated outsourcing non-core functions.
A non-core function is one that is not a profit center (meaning, you don’t charge customers for it). A non-core function may be essential, but doesn’t differentiate your business strategically from competitors.
In most businesses, administrative and back-office activities such as payroll are non-core functions.
As such, they are potential candidates for outsourcing.
But the question business owners and managers want answered is: what do you actually gain from outsourcing payroll? Is it worth all the time and effort just to investigate and identify appropriate outsourced service providers? Then there’s the work involved to transition the function outside to the third party service.Do the benefits of outsourcing outweigh that effort?
Alya Almarzooqi Auditing
has noted several long-term advantages to be gained from outsourcing payroll:
“A company had one person performing all of the payroll processing functions. The company is now outsourcing the functions as a result of thinking ahead. They chose to outsource the functions to reduce the risk of the payroll not being processed, to manage growth by anticipating the increased payroll responsibilities that will be required as the firm grows and hires more employees, and to keep up with technology, such as pay cards and direct deposit.”
Ideally, outsourcing achieves three main goals:
- It frees up time and resources to focus more on your core business.
- It gives you access to more technology and expertise to perform payroll well.
- It reduces costs and risks.
Let’s examine each of these benefits in more detail, and what they mean.
- Payroll Outsourcing Helps in Focusing Better on Your Core Business
Payroll is one of those critical functions that may not directly increase sales. But carried out poorly, it can put your business in a world of hurt.
And most of all, it can sap internal time and attention away from core activities.
It takes considerable time and attention to detail to deal with payroll maintenance.
There are the obvious legal requirements, such as tax reporting and remittance. There are requirements around withholding taxes from the employee’s pay, and also calculating the employer’s portion of taxes.
- Payroll Outsourcing Helps in Getting Access to Expertise and Technology
Another reason to outsource is to get access to expertise and technology.
Employers have to deal with almost 10,000 federal taxing jurisdictions across the UAE. While most small businesses won’t have to comply with each of those jurisdictions, still it points to the complexity of the laws. And every year hundreds of new laws and regulations are enacted.
Employers today rely on technology to operate more efficiently. As a business grows, employers have more employee records to keep and also need more reporting. Lack of technology becomes a hindrance to scaling for growth of the business.
Employees today want options like direct deposit and self-service access to their payroll information online. Employers that aren’t able to provide such options may be at a competitive disadvantage. On top of that, the explosion of mobile device usage is ushering in a new level of technology expectation. Mobile use is still nascent when it comes to payroll, but it’s “growing at a rapid rate. Employers are using mobile devices to look at certain reports and look up information, such as how much money they need to have in the bank on payroll dates, etc.
Employees also are beginning to use mobile apps to check their own records.
- Payroll Outsourcing Helps in Reducing Costs and Risks
Outsourcing payroll can also assist with cutting costs and limiting risks. On average, businesses are overpaying employees by about 4 percent because of differences between the employee’s time and an accurate time record.
Just having a more accurate time and attendance recordkeeping solution can save money.
A good payroll provider offers capabilities that go beyond what you can do on your own. If you haven’t considered an outsourced solution before, make this year the year you switch. It will deliver peace of mind for you as the owner, and free up time in your company.
Tips for Choosing an Outsourced Payroll Provider
If you’re considering outsourcing payroll, it’s a given that you should look at the typical three points
you’d look at when choosing any kind of provider:
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