By
Ruelha Mascarenhas
Payroll is an intricate function that requires both experience and expertise. Besides wage computations and disbursements, the HR department must also factor in tax responsibilities and comply with the relevant regulatory bodies. All of this can be complicated and consumes a lot of time. This is why most businesses nowadays prefer hiring a professional payroll outsourcing provider.
The truth is, payroll outsourcing has been around for decades. Many reputed MNCs and global players partner with HRO service providers to surpass the hassles that payroll management brings. Not just big fish, but outsourcing payroll functions to competent consultants greatly benefits start-ups and small firms the most.
Let's take a peek at the prevalent market conditions to comprehend the implications of outsourcing payroll processing thoroughly:
- Businesses have Reopened
Almost every business, regardless of industry, location, and size, has suffered to varying degrees since the onset of the global pandemic. Some have lost their workforce, while others have lost clients. However, after a long hiatus of languishing in the perils of crippled economies, there seems to be renewed hope as things return to normalcy. Shutters are winding upwards, and businesses are looking at recovering their losses against pre-determined slabs. The way they achieve this is simple: increase revenue and cut down on unnecessary costs.
- An Influx of Fresh and Upskilled Talent
Graduates that passed out in 2019 didn’t really get any opportunity to venture out. Then again, 2020 and 2021 added more to the list of unemployed graduates. That’s a cumulative effect of graduates from 2019, 2020, 2021, and 2022 – all actively seeking jobs today. If we were to go by the very first law of the demand and supply ratio, this infers that the value of the existing workforce goes down because of the disproportionate rise. Businesses looking to cut costs may very well hire fresh graduates at a cheaper cost and train them rigorously instead of hiring experienced staff at a higher CTC.
- Sculpting a Lean Businesses Model
Before the pandemic, most businesses had settled into the reap-and-multiply earnings cycle. But today, businesses do not have this luxury. Instead, they’re struggling to stay afloat. That puts them in the sustain-and-rebuild mode. In addition, businesses are attempting to drastically improve the individual performance and efficiency of their employees, which means fewer people must take up greater responsibilities. Moreover, trimming the excess fat, such as expenses from team engagement activities, bonuses, excess admin overheads, additional allowances & benefits, commercial office space & relative maintenance, power usage, amenities, stationery, and miscellaneous costs may also contribute to building lean-cut businesses.
These market conditions are not the most conducive, but organizations that have survived so far have attested that the reason behind their sustenance is their ability to adapt to change. Tweaking processes and policies in sync with the market conditions tops the way this can be achieved. And outsourcing payroll does just that!
How Payroll Outsourcing is vital and relevant in the prevalent market conditions
For starters, the most significant reason businesses outsource payroll is to cut costs. It is significantly cheaper for businesses to hire third-party experts than to run the entire operation in-house. But why is it cheaper? Besides actual cash outflows, a lot of time is invested and wasted in these functions. Of course, it’s not a waste if the end outcome is productive. True, but with unjustifiable TATs and ROIs, it wouldn’t be unfair to call it a waste! Scalability may witness hurdles if you have a fixed number of people managing your payroll. It’s rather challenging to adapt swiftly to erratic market conditions such as large-scale retrenchment or recruitment. Professional payroll providers allow businesses a buffer to scale up or down, as and when required, quickly and efficiently without hampering productivity or efficiency. Let's look at some of the long-term effects of partnering up with a payroll outsourcing provider:
1. Outsourcing Payroll reduces cost heads
It’s simple math. Companies that outsource payroll spend on additional overheads. The most obvious CTC (cost to company) is an HR employee's salary. And despite the size of a company, no matter how small or local, there is usually more than one HR person handling payroll processes. So that's multiple salaries that need to be paid. These aren't one-time investments. Also, only experienced HR personnel usually land up with payroll functions. That means a higher pay package, both of which the current market conditions do not permit. Firstly, fresh recruits lack the experience and expertise to handle this complex task. Then, apart from salaries, HR team personnel have additional associated benefits and perks. The average benefits package is well over 30% of an employee's compensation. That's still just an average; it could be much more, depending on contracts and functions. All of those increase the expense value of the cost heads in your accounts sheets.
By doing away with an in-house payroll processing team, you eliminate the need to pay any additional benefits to non-existing staff. Also, when you hire your own payroll processing staff, you must train them appropriately, especially if they're fresh graduates with no experience in handling such a vital role. From their onboarding, induction, and mandatory compliance courses to getting them familiar with the company procedures, all are time-consuming, highly cost-intensive processes. On average, most companies spend an additional 1/4th of the amount spent on acquiring new payroll staff just to get them oriented. Do you see the white elephant now?
Also Read: The Ultimate Guide to Efficient Payroll Management
2. Payroll Outsourcing ensures compliance with regulatory bodies, avoiding unnecessary fines and penalties
Payroll service providers specialize in payroll functions, among other tasks. They ensure you pay your staff on time. They take the burden of reimbursement calculation, local, state, & central tax computations, incentives, and timely deposits off their clients. There may be severe consequences if inexperienced staff inadvertently violates these due to negligence. Thus, for clarity, every business must have a set of policies and procedures that the employer and employees must comply with. There must be a basic framework of each side's expectations, responsibilities, and functionalities to ensure smooth operations. Besides, being on time with payroll services builds trust among staff, which is crucial when you have a lot of fresh recruits. It enhances teamwork, dedication, productivity, and in turn, profitability. Codes, statutes, regulations, and standards must be met and adhered to. Violations in this regard can drain any lean business leaving them with little to no scope for resurrection. One cannot plead innocence due to ignorance. It is the responsibility of the company's leadership to ensure these criteria are met with strict compliance, failing which there may be consequences that may be challenging to sustain in such times. Insurance, income tax, provident fund, medicare, salary deferrals, and arrears must all have an accessible and transparent audit trail in case of inspections.
Let's assume you just lost an employee to attrition. You must calculate their full and final settlement along with their provident fund, gratuity, and bonuses. When staff is entitled to certain benefits such as encashment of leave upon termination, retirement, or resignation, the persons processing these must be aware and adjust accordingly. They must follow the company policy agreed upon by the employee when joining. If tax is deducted, you must provide appropriate documentation. Likewise, you must be careful to ensure the tax is deposited on time to avoid attracting fines. Remember, fines compounded over time can lead to huge losses from cumulative liabilities. Besides, your reputation and goodwill are also damaged in the bargain. A payroll service provider will ensure you do not face the brunt of unwarranted legal complications.
3. Payroll service providers help you save time-related perceived productivity loss
It may be challenging to forecast total losses based on lost person-hours. But, it is undeniable that when you outsource payroll functions, your HR staff spends lesser time on administrative duties such as leave, attendance, T&E reimbursements, and overtime computation. Especially since COVID, where most companies are managing with limited staff and resources, and they must use both optimally. Instead of burdening an in-house HR team with simple tasks, you can reduce a minimum of 30% of their duties with payroll outsourcing. So your HR staff can get more time for productive work. Engrossing employees in more significant jobs is a huge motivating factor that further enhances productivity among your team members. Dedicating resources to routine, mundane tasks that can be taken care of by another agency that is experienced and competent is unjustifiable.
As you can see, there are several cost benefits to outsourcing payroll services. The costs involved in engaging a good payroll service provider are far lesser than the monetary savings you can accrue.
Considering the stifling economic conditions, businesses just cannot afford to ignore the benefits of engaging with external payroll outsourcing services.
Exela HR Solutions is a world leader in global payroll processing and compliance. Partner with the team that will help rebuild your vision through cost-effective processes. Find out more about our offerings here.
DISCLAIMER: The information on this site is for general information purposes only and is not intended to serve as legal advice. Laws governing the subject matter may change quickly, and Exela cannot guarantee that all the information on this site is current or correct. Should you have specific legal questions about any of the information on this site, you should consult with a licensed attorney in your area.