Outsourcing payroll: Everything you need to know

Small businesses outsource their payroll function more than larger firms. According to Statista, 15% of organizations with less than 2,500 staff confirm they outsource their payroll in a 2019 global survey. 

If outsourcing payroll has ever crossed your mind to boost your business, we are more than happy to give you the final push to do it.

Outsourcing definition

The term outsourcing refers to the business practice of contracting out of a business process, a role, or management to an external provider. People are more familiar with the term Business Process Outsourcing or BPO. 

When businesses outsource to a provider outside of their country, it is called offshoring or offshore outsourcing.

Apart from outsourcing payroll, you can also outsource different tasks and roles to countries such as the Philippines. They help streamline your business processes and keep your operations moving.

Outsourcing payroll

Payroll functions include paying employees on time and ensuring they receive accurate compensation. It also includes taking care of their reimbursements, bonuses, overtime, and holiday pay.

Moreover, the payroll department also takes care of salary deductions, keeping and verifying pay data, and check delivery. Most importantly, they comply with tax laws, record paperwork for new hires, and edit existing employee files. 

Carrying out all of these essential tasks can be exhausting and complicated for your in-house team. When an organization hires an external party to do these tasks, this is known as outsourcing payroll.

A specialist payroll company or a payroll outsourcing provider performs outsourced payroll services. They can engage with your business domestically or within the country, or internationally.

Benefits of outsourcing payroll

Learn more about the significant benefits of outsourcing payroll, and read on to know how this approach could make your business operations smoother and better.

Saves time and money

Processing payroll demands time and keen attention to detail to avoid severe mistakes that could cause unnecessary expenses. 

By outsourcing payroll to a reputable provider, business owners have more time to focus on their products and services. 

Additional tasks, such as troubleshooting reimbursements and miscalculations in payroll processes, can halt your operations unexpectedly. It could mean drastic effects on your business.

Payroll providers will only need to report once to notify business owners that their payroll has been processed successfully without discrepancies or miscalculations. 

Outsourcing payroll saves you all the worry and hassle while your operations run smoothly.

Enhances security

Payroll is a sensitive and potentially risky aspect of any business operation. Even with tenured employees, there is always a risk of identity theft, fraud, or tampering with company files for personal gain. 

How can you ensure the safety of your company’s payroll data server or network? Do you have the time and energy to supervise your payroll process meticulously? These questions should determine if you trust your payroll processing. 

Most payroll services have software that can spot and alert clients to various types of fraud. However, you’ll need an expert to work this out. It can be expensive. 

A quality payroll provider invests in the most up-to-date software systems for more secure storage and data protection simply because it’s part of the standard service provided to their clients.

Regulatory compliance

Laws, regulations, and mandatory rules compliance — especially when foreign governments are involved — are some of the most daunting tasks any business owner should take seriously regarding payroll.

Businesses need to have an in-depth understanding of regulations to avoid non-compliance charges. These regulations include working around and complying with labor, tax, immigration, anti-discrimination, and insurance laws. 

Legal and compliance requirements relating to payroll are undeniably complex. It becomes even more complicated when operating internationally. For example, if you work in a different country, a particular payment system applies to their vacation or holiday, while optional in another country. 

Outsourcing in populous countries, such as China, means dealing with their own set of taxation rules. China’s progressive income tax ranges from 3 to 45 percent based on a worker’s income, while the corporate tax rate is 25 percent.

The country’s statutory benefits include insurance, housing, pension, worker’s compensation, and maternity benefits. While some contribution is deemed mandatory, employees negotiate for more. That leads employers to contribute between 5 and 25 percent of the employee’s annual salary.

With the help of outsourcing, you can delegate such essential tasks to a company with experts knowledgeable about specific local and national laws. You will save time and avoid unnecessary penalties or fees.

Return on investment

An accurate and efficient payroll solution reduces the time spent manually processing payroll, from days to hours each month. All businesses can also measure their return on investment or ROI.

The National Small Business Association states that business owners surpass $83,000 in regulatory costs just for the first year of their operation. Managing such tax compliance within your in-house teams can be challenging and could even increase an organization’s risk of underpaying employer taxes.

Staying current with every single change in federal and state guidelines can be draining and complicated when you’re already handling payroll and HR manually. 

The return on investment that comes with reducing tax penalties and compliance risks will amaze you.

Take your first step in outsourcing payroll services

If you agree to the list above and how it could improve your organization’s profitability and efficiency, it’s time to consider outsourcing your payroll. 

Choosing a provider that suits your needs will be your first step in outsourcing payroll services. Consider your industry, company size, and payroll frequency. You can also choose from these top outsourcing companies that adhere most to your standards. 

Once you’ve defined what you need from a payroll provider, lay down your specific payroll criteria. And then all you need to do is outsource.