Top 10 pros and cons of outsourcing payroll for your business

Why should business owners consider outsourcing payroll? 

Managing payroll in-house can be time-consuming and expensive; payroll outsourcing makes the processing more affordable. In addition, the slightest payroll error can damage your company's reputation and get you in trouble with the law; for this reason, some businesses choose to outsource payroll processing so they can focus on other aspects of their business that are more important. You can also stay on top of regulations by outsourcing payroll to an experienced company. However, before outsourcing payroll administration to a third party, you should evaluate its advantages and disadvantages. 

Payroll errors are on the rise. 

According to the FWO's annual report, released in October 2021, almost $150 million in lost wages have been recovered for workers in the 2020-2021 financial year, 20 per cent more than the recovery efforts in 2019-20 and almost five times what was recovered in 2017-18. 

Underpayment of workers is widespread across the country, is growing every year, and occurs in businesses of all sizes, from large, listed corporations like Woolworths to small and medium-sized enterprises like cleaning companies. It includes self-reporting entities as well as those found by the FWO to have violated the law in a blatant manner and disrespected their employees' rights. 

Pros and Cons of Outsourcing Payroll. 

Any business can benefit from outsourcing payroll processing but outsourcing also has risks that you should consider. This blog outlines the pros and cons of outsourcing payroll. 

Pros 

1. Timesaving 

Managing payroll in-house requires managing a large amount of data that varies from employee to employee. To ensure 100% accuracy, calculating deductions and net pay required dedicated time and care. Outsourcing payroll to a specialist payroll company allows you to spend more time on core business activities like marketing, sales, and strategy for growth. 

Outsourcing the administration of payroll processing means that you can review your workforce from a perspective of labour costs, projects and pay items. Most modern payroll solutions provide comprehensive reporting and analytics to help you understand the trends, and opportunities and make decisions around cost control, recruitment and remuneration. 

2. Compliance and timely reporting 

All businesses endeavour to avoid fines from regulatory bodies but keeping on top of all the updates and changes is challenging work. There is a lot to keep track of and report to the regulatory bodies from the changes surrounding STP Phase 2,  FairWork Modern Awards, JobMaker and Super Stapling.

A payroll expert is necessary for a business to ensure compliance with payroll regulations, employee payments, and timely reporting. Outsourcing payroll eliminates the need for in-house experts and ensures compliance and accuracy. 

3. Cost saving 

By outsourcing to a proficient payroll provider, you can reduce costs. Payroll processing in-house, for example, can be costly as it requires you to hire a payroll expert and the necessary tools and technology to process payroll. However, outsourcing payroll processing can save you money since payroll outsourcing costs are predictable. You may also be able to save on additional features offered by the payroll service provider. Outsourced payroll solutions have a more holistic approach to workforce management and include award interpretation, time and attendance, rostering and scheduling, and employee self-service. 

4. Peace of Mind 

An outsourced payroll service provider ensures they are up to date with the complexities of taxes, human resources, and government regulations. Outsourced payroll provides experts in the field who will manage all your payroll activities - ensure compliance, pay your taxes on time, and pay your employees the right amount at the right time. In addition to saving time and hassle, outsourcing payroll gives you peace of mind by ensuring that your payroll processing is always taken care of, and you are not held short due to staff shortages or lack of expertise. 

5. Business growth and connectivity  

Cloud payroll solutions like Access Definitiv offer data and analytics to review labour costs, take control and forecast for future growth and strategy. Data-rich payroll engines can also connect with your in-house systems like ERP or financial software to help you manage costs and forecast for the future. Outsourcing payroll solutions also cater for business growth taking care of more employees, contractors, and casuals and most are based on pay per use so making outsourcing cost-effective and reliable. 

Cons 

Payroll outsourcing also has its drawbacks, so if you are looking at outsourcing your payroll processing, you should be aware of the downside to making an informed decision. 

1. Substandard Service Provider 

Partnering with a substandard outsourcing payroll provider can be detrimental to your business so do your due diligence before outsourcing payroll. Obtain references and check the company's qualifications and processes. Choose the right outsourcing payroll partner for your business by comparing providers. 

2. Inability to control your data 

Outsourcing payroll to a service provider means you agree to terms and conditions set by the provider. Ensure you know where and how your data is stored and used, as payroll data is sensitive and needs to be always kept secure. Many cloud payroll software solutions have options for multi-level authorisation, allowing you to view, edit and share data. 

3. Service Agreements 

The outsourcing payroll service provider may fail to respond immediately if a payroll mistake occurs, damaging your company's reputation. Ensure you know the service level agreements. 

4. Hidden costs 

Some outsourced payroll service providers offer services beyond your requirements, this means you are paying for services you do not need or may not use. Aside from that, not every service provider offers customised rates and services dependent on business size or requirements. Make sure you research and pick an outsourced payroll package to suit your budget and meet your business requirements. On the other hand, you may get some cost savings by using the full-service offering if the additional services cover your business requirements. 

5. Data portability  

The term "data portability" refers to the fact that the data is stored in a widely recognised format and is accessible in some way. As your business grows or changes direction you want to be assured that you have the option to move to new platforms and still have data integrity. Many outsourced payroll solutions use software that does not allow for data to be portable which then limits you from moving providers or software. When reviewing an outsourcing payroll provider ensure you know what software they use to manage your payroll and what happens to your employee data in the future. Modern cloud-based solutions like Access Definitiv allow data portability.  

Conclusion  

Your business can benefit from outsourcing payroll if you consider these pros and cons. Outsourcing comes with many benefits for your business and can also streamline the workforce management of your business. Overall, outsourcing payroll processing for your business is a safe way to stay compliant and ensure your employees are paid. However, before engaging in outsourcing payroll processing, ensure you research and consider the pros and cons for your business to make the right decision. 

Download our eBook Outsourced Payroll vs In-house Payroll for a detailed comparison when considering outsourcing payroll or keeping it in-house.