Payroll outsourcing can offer huge cost savings while providing easy access to experts in payroll management. However, it doesn’t come without risks and challenges.
If you’ve been thinking about outsourcing your payroll functions, our guide can offer an in-depth understanding of the payroll outsourcing process to help to curate an outsourcing strategy that works best for you. So, let’s start with the basics!
Understanding Payroll Outsourcing
Payroll outsourcing essentially refers to hiring a third-party payroll service provider to run payroll functions on your behalf. Instead of processing payroll in-house, you choose to work with an external organization specializing in the area.
Similar to outsourcing, payroll co-sourcing has also become quite popular among businesses, where some aspects of payroll processes can be hired from a third-party provider while other tasks are completed in-house. While some companies may choose this hybrid model because they don’t want to entrust sensitive data to a third party, others might take this route because the service provider is more adept at performing certain tasks.
Common Payroll Functions to Outsource
While you can hand over all payroll functions to a third-party provider, it may not always be desirable. Some of the core responsibilities that most organizations choose to outsource include–
- Setting up payroll
- Setting up a payment method
- Tracking time worked
- Calculating wages
- Delivering pay
- Implementing security measures to safeguard employee and company information
- Ensuring compliance with imposed rules and regulations
- Managing employee deductions
- Withholding payroll taxes, garnished wages, and income taxes
- Remitting payroll taxes
- Finishing end-of-year tax calculation and filing
On the other hand, Our payroll outsourcing solution makes managing payroll easier for your business. Automated paychecks, multi-currency management and custom reports – all without a single worry about the details of your payroll process.
How Does Payroll Outsourcing Work?
The payroll outsourcing process starts with you, where you need to determine the preferred degree and nature of outsourcing. Do you wish to outsource completely or co-source, and if you choose the latter, how do you plan on dividing responsibilities?
Once you have a clearer picture of what you expect from your payroll partner, you move to the next step of finding the right service provider. Fortunately, a simple Google search is enough to acquaint you with numerous companies that work both regionally and globally. While your points for evaluation may differ, you must prioritize data security and regulatory compliance.
When you have found an outsourcing provider, both of you need to consent to ‘terms of engagement.’ In the agreement, the specific duties of your provider will be established officially, along with the compensation for each service. Finally, you will share every relevant information that is required to assume the prescribed payroll functions.
After the data exchange, your payroll provider can start with its actual duties. It would include the distribution of pay on a specific schedule. Similar to in-house payroll functions, taxes are withheld before any payment is made.
In most cases, your payroll partner will report to you on a predetermined basis to highlight their work, performance, and progress. As a client, you must use this opportunity to ensure things are going as planned.
Advantages & Disadvantages of Payroll Outsourcing
Companies outsource payroll for a variety of reasons, such as –
- It Saves Time and Money – Outsourcing is more cost-effective as compared to hiring an in-house team. Not only do you have to hire full-time employees and invest in the necessary technology, but you can also hire a provider from countries that offer competitive packages.
- It Increases Focus on Core Operations – Because payroll isn’t your core function, you can channel your time, money, and workforce towards innovation and hitting growth targets.
- It Enhances Payroll Compliance – Payroll providers are usually aware of local tax rules and regulations, which you may not know when setting up a business in a new location. As a result, outsourcing can significantly help you in staying compliant and avoid penalties.
- It Reduces Error Frequency – Because payroll companies specialize in payroll management, they have access to experts and technology that leaves less room for mistakes.
Despite plenty of advantages, outsourcing payroll functions also has a couple of disadvantages. Let’s briefly look at them –
- Reduced Oversight – When you outsource an external enterprise for payroll management, you give up direct supervision on all or many processes. At the end of the day, there isn’t any natural substitute for the level of oversight you can achieve in-house. Hence, looking for a trustworthy partner who would maintain the same level of care and precision that you’d expect from yourself is paramount.
- Decreased Data Security – There is a higher risk of a data breach when you hire an external firm. While data security risks won’t go away completely, trusting someone outside your company does tend to increase them.
Best Practices of Payroll Outsourcing
If you wish to minimize the risks of outsourcing, you must keep the best practices of payroll outsourcing in mind before onboarding an external team. Let’s take a closer look at what these practices are –
Paying Attention to the Experience and Reputation of Your Provider
You must know what’s at stake when choosing a third-party payroll provider. The job of your payroll partner is to make things easier for you, but don’t fall prey to a false sense of security presented by many fraudulent providers.
In addition, you must remember that even the best workers are prone to data breaches or making mistakes. Therefore, vet every third-party provider to ensure they are reliable and experienced enough to minimize the challenges of outsourcing.
Staying Aware of Tax Burdens and Regulations
A misstep in some areas by your payroll partner could lead to big problems for your company. Because of this reason, you must make sure your provider, belonging to a different country, is aware of the employment regulations in your country. No company should blindly trust the applicable taxes remitted by your provider. It’s wise to double-check the figures to make sure they are correctbecause an error could become costly or even lead to the downfall of your organization.
Taking Your Time
If you haven’t worked with a third-party payroll provider before, it is essential that you take plenty of time to evaluate and compare different vendors to find the right provider for your business.
Don’t underestimate the importance of payroll in your organization, mainlybecause its prime function is to fuel your greatest asset – the workforce. When considering the sensitivity of the personal and company data involved, it becomes clearer why you cannot rush into a decision when choosing a payroll partner.
Simplify Your Payroll Functions with TASC Corporate Services!
Outsourcing payroll functions can significantly impact your organization’s efficiency and bottom line, provided you select the right partner to handle these crucial tasks. TASC Corporate Services is an ideal choice, offering a dedicated team of experts who specialize in core payroll and administrative tasks.
By partnering with TASC, you can streamline your payroll management processes and improve operational efficiency, ultimately saving time and money for your organization. Don’t leave your payroll functions to chance; trust the experienced professionals at TASC Corporate Services to manage the complexities and ensure a smooth, error-free process.
To learn more about how TASC can benefit your organization and help you make the most of payroll outsourcing, contact us today for a consultation. Take the first step towards a more efficient and cost-effective payroll solution – choose TASC Corporate Services.
How to choose a payroll provider?
When you plan on hiring a third-party payroll provider, the factors you must keep in mind to mitigate outsourcing challenges are –
- Accuracy in calculations
- Customer references and reviews
- Customized packages
- Subject matter expertise
- Data security and legacy data management
Do large companies outsource payroll?
Yes, definitely. Numerous mid-to-large enterprises outsource payroll services to focus on their core operations. Additionally, it also allows them to access and grow in new market areas.
How much payroll outsourcing costs?
Because there are many functions, processes, services, and regulations in payroll outsourcing, the prices tend to vary greatly. Some of the factors that influence the cost include service features, volume, and headcount. The pricing will differ based on your provider, so you must contact each one individually for a custom quote based on your needs.