Key considerations when deciding whether to outsource Key considerations when deciding whether to outsource

Key considerations when deciding whether to outsource
05 Dec 2018

Companies have two key options when considering how to run their global payroll operations: They can either install the relevant IT infrastructure, develop the necessary internal skills and keep the function in-house, or they can go down the outsourcing route.

While there is no foolproof answer as to which will work best for you, it does make sense to evaluate the options based on set business objectives and criteria, particularly if dealing with multi-country operations.

Small-to-medium enterprises tend to run payroll in-house, often simply with an accounting and attached payroll package. But such a situation can prove to challenging as they frequently do not have, or cannot justify paying for, the skills required to run and manage their own payroll, particularly if it is operated in more than one location.

For larger firms, a scalable, customisable, rules-based system will generally be better suited to their more comprehensive and complex needs, but such applications can be costly to both implement, manage and maintain. 

Why outsource?
Outsourcing can help to relieve organisations’ skills shortages, whether permanent or temporary as a result of sick leave or holidays. Using a specialist service provider can also improve efficiency by centralising the payroll function and ensuring best practice is introduced without the business having to make a large, upfront investment in an enterprise system.

Outsourcing payroll services can likewise help to mitigate concern over how best to comply with legislation and tax regulations. As a result, ensure that any potential service provider conforms to the International Standard on Assurance Engagements (ISAE) 3402, which relates to financial compliance controls.

It is also important to ensure they operate within the agreed parameters of a formal service level agreement in order to ensure that service delivery is timely and confidentiality relating to sensitive employee data is maintained.

Moreover, as outsourcing is paid for at an agreed rate per employee, it means the approach is ideal for organisations working in industries with fluctuating employee numbers and large peaks in activity. This is because a variable payroll cost base tends to be more cost-efficient for them than a fixed cost one. 

Finally, in total cost of ownership terms, an outsourced solution means no upfront investment in software, ongoing maintenance or updates are required as the service provider takes care of such issues.

Key considerations when deciding to outsource

While outsourcing the payroll function should, in theory, result in cost savings, fees can end up increasing if the payroll process is more complex than originally defined, or if additional requirements are added to the original scope. As a result, it is vital to ensure your tender document outlines the full range of required services and makes the complexity of your processes clear in order to ensure you are given the correct pricing from the outset.

It is also worth bearing in mind that some organisations suffer a fall in service levels when moving to an outsourced service provider. The reason is that outsourcing payroll generates changes to workflows and, while an employee may have been able to walk down the corridor to find something out when payroll was managed in-house, this will no longer be the case once it is outsourced.

This means it is crucial to communicate clearly with the workforce well in advance of any move to an outsourcer to ensure that everyone is prepared for the changes and understand the new process flows. It also makes sense to ensure your service provider offers online access to key financial or statistical payroll data to ensure it is as rapid and easy as possible.

Finally, because payroll is such a sensitive area of the business, many executives are reluctant to hand the service over to third parties. As a result, if the senior management team fails to agree on whether it is a good idea or not, the outsourced model will prove difficult to bed down and any move in this direction should be considered carefully.

Sharon Tayfield

Sharon Tayfield is a senior manager, with extensive experience in global outsourcing and a special interest in payroll. She has undertaken senior management roles at a range of multinational companies, including a wholly-owned subsidiary of Anglo America where she was financial director. Prior to her current role, Sharon was chief operating officer for a payroll service company specialising in outsourced services to Africa and the UK.

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When to outsource HR and payroll operations and when to keep them in-house

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Monthly Measures: Outsourcing may be common, but payroll is still highly transactional

 

 

 

 

 

Companies have two key options when considering how to run their global payroll operations: They can either install the relevant IT infrastructure, develop the necessary internal skills and keep the function in-house, or they can go down the outsourcing route.

While there is no foolproof answer as to which will work best for you, it does make sense to evaluate the options based on set business objectives and criteria, particularly if dealing with multi-country operations.

Small-to-medium enterprises tend to run payroll in-house, often simply with an accounting and attached payroll package. But such a situation can prove to challenging as they frequently do not have, or cannot justify paying for, the skills required to run and manage their own payroll, particularly if it is operated in more than one location.

For larger firms, a scalable, customisable, rules-based system will generally be better suited to their more comprehensive and complex needs, but such applications can be costly to both implement, manage and maintain. 

Why outsource?
Outsourcing can help to relieve organisations’ skills shortages, whether permanent or temporary as a result of sick leave or holidays. Using a specialist service provider can also improve efficiency by centralising the payroll function and ensuring best practice is introduced without the business having to make a large, upfront investment in an enterprise system.

Outsourcing payroll services can likewise help to mitigate concern over how best to comply with legislation and tax regulations. As a result, ensure that any potential service provider conforms to the International Standard on Assurance Engagements (ISAE) 3402, which relates to financial compliance controls.

It is also important to ensure they operate within the agreed parameters of a formal service level agreement in order to ensure that service delivery is timely and confidentiality relating to sensitive employee data is maintained.

Moreover, as outsourcing is paid for at an agreed rate per employee, it means the approach is ideal for organisations working in industries with fluctuating employee numbers and large peaks in activity. This is because a variable payroll cost base tends to be more cost-efficient for them than a fixed cost one. 

Finally, in total cost of ownership terms, an outsourced solution means no upfront investment in software, ongoing maintenance or updates are required as the service provider takes care of such issues.

Key considerations when deciding to outsource

While outsourcing the payroll function should, in theory, result in cost savings, fees can end up increasing if the payroll process is more complex than originally defined, or if additional requirements are added to the original scope. As a result, it is vital to ensure your tender document outlines the full range of required services and makes the complexity of your processes clear in order to ensure you are given the correct pricing from the outset.

It is also worth bearing in mind that some organisations suffer a fall in service levels when moving to an outsourced service provider. The reason is that outsourcing payroll generates changes to workflows and, while an employee may have been able to walk down the corridor to find something out when payroll was managed in-house, this will no longer be the case once it is outsourced.

This means it is crucial to communicate clearly with the workforce well in advance of any move to an outsourcer to ensure that everyone is prepared for the changes and understand the new process flows. It also makes sense to ensure your service provider offers online access to key financial or statistical payroll data to ensure it is as rapid and easy as possible.

Finally, because payroll is such a sensitive area of the business, many executives are reluctant to hand the service over to third parties. As a result, if the senior management team fails to agree on whether it is a good idea or not, the outsourced model will prove difficult to bed down and any move in this direction should be considered carefully.

Sharon Tayfield

Sharon Tayfield is a senior manager, with extensive experience in global outsourcing and a special interest in payroll. She has undertaken senior management roles at a range of multinational companies, including a wholly-owned subsidiary of Anglo America where she was financial director. Prior to her current role, Sharon was chief operating officer for a payroll service company specialising in outsourced services to Africa and the UK.

OTHER ARTICLES THAT MAY INTEREST YOU

When to outsource HR and payroll operations and when to keep them in-house

How to cut global payroll costs quickly

Monthly Measures: Outsourcing may be common, but payroll is still highly transactional