Outsourcing payroll viable option for most

Benefits include cost savings, improved quality, simplified process
By Rob Sterling
|Canadian HR Reporter|Last Updated: 09/10/2012

In streamlining operations, one popular approach is outsourcing non-revenue-generating practices, such as payroll processing.

In this scenario, the in-house payroll or HR professional is responsible for inputting and managing payroll information in the service provider’s system. The provider calculates and pays remittances due to the government or other third parties, pays employees via the chosen method (cheque or direct deposit) and provides reporting capabilities.

Three key advantages to outsourcing payroll processing are:

• cost savings

• time and ability to refocus on core competencies and strategic business practices

• access to operational expertise and increased regulatory compliance.

Benefits of payroll outsourcing

Save money: Outsourcing payroll processing can be affordable and cost-effective, even when compared with in-house technologies. In-house technology may appear cost-effective upfront but expenses are often underestimated as business owners and managers fail to account for the hours and resources spent on the administration of the payroll.

Web-based service providers provide the latest in payroll processing and HR management technology, keeping businesses current through instant upgrades. This eliminates the need for software and support fees, upgrades, debugging or licensing. As well, web-based service providers host all payroll data in secure, off-site locations so there is no need for in-house IT support at the database level.

The cost of outsourcing payroll varies, depending on the number of employees, the complexity of the payroll and the services or options selected. Online payroll processing typically includes an initial setup fee plus a fee per employee, per payroll run.

“Many companies overestimate the cost of payroll outsourcing and assume that it is too pricey for the average business, which is not the case,” says Barb Gamey, president of Payworks, provider of services in payroll, human resource management and employee time management.

Get back to business: Outsourcing can also provide the payroll department with time and energy to refocus on growing the business. Automating payroll ensures businesses are no longer burdened by complex payroll and benefits calculations, such as Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) payments, employment insurance (EI) or garnishments.

As well, some service providers offer time-capture applications such as time clocks or employee self-service systems which are integrated with the payroll application. They allow employees to log hours worked that flow directly through to payroll after being reviewed and approved by management.

These automated applications reduce the frequency of errors because information is entered directly into the system, rather than from a paper file.

Outsourcing also allows access to a robust system. Payroll applications are enormous and businesses generally only have a glimpse of the feature functionality. Regardless of how an employer’s circumstances change and grow, payroll applications are flexible and scalable enough to adapt.

When more functionality is needed, or integration with a human resources management application is wanted, an employer only needs to contact its account representative to have the system accommodate the necessary changes. The payroll system will not limit its business growth.

Improve quality: Businesses of all sizes find that outsourcing to payroll service providers improves the quality of business processes. Small businesses gain access to talent, operational expertise and a knowledge base that they may not be able to afford in-house. Larger businesses are assured increased regulatory and legislative compliance and minimized risk for costly penalties.

Service providers also offer direct deposit as well as secure pay statements online, so organizations don’t have to worry about internally distributing cheques and pay statements.

There is a further expense reduction for employers with multiple locations as they no longer need to courier pay packages.

A company looking to outsource is looking for a business partner. If the role is performed correctly, that partner will provide scalability, flexibility and continuity. This partner can also provide stability if there are key personnel changes at the organization.

Some payroll service providers act as business partners by providing advice and consultation, and by acting as a sounding board or a second set of eyes.

Who should outsource?

Employers from all industries and of all sizes should consider outsourcing payroll as the same compliance standards and penalties are held for a company with one employee as they are for a company with tens of thousands of employees.

Outsourcing payroll can be particularly beneficial for:

• small businesses with limited workforces to concentrate on revenue-generating activities

• businesses with high turnover to simplify the employee management process, including the creation of records of employment (ROEs)

• companies with complicated payrolls that may include employees working remotely or in multiple offices, offices in more than one province, complex reporting requirements or both hourly-paid and salaried employees.

When convinced outsourcing is viable, employers should consider the following steps:

• Decide on what the business needs from a payroll service provider. Ask for references and read the testimonials on companies’ websites. Ideally, select vendors with experience in handling businesses of the same size, industry and geographic location.

• Locate suitable outsourcing companies. Favour vendors that can effectively integrate outsourced functions. If it is decided to outsource more processes in the future, such as human resources management or employee time management, the person responsible will appreciate not having to find individual companies for each function.

• Contact the potential vendors and ask questions about their services and their ability to meet the company’s specific needs.

• Select a trustworthy service provider. The contract should clearly define responsibilities, performance criteria and confidentiality rules, and should include a method of severing the relationship if the service does not meet expectations.

Rob Sterling is vice-president of product development at Payworks in Kelowna, B.C. For more information, email info@payworks.ca, call (866) 788-3500 or visit www.payworks.ca.

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