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Payroll outsourcing in the new normal: pros and cons

From SaaS to fully managed services, payroll outsourcing exists in many shapes and forms. But whichever formula you go for, handing over some or all of your payroll duties to a third party is a big call to make. Before you get into which payroll tasks to outsource, getting all the intel on possible pros and cons seems a logical first step.

    4 pros of payroll outsourcing

    Airtight payroll compliance

    Payroll compliance has become very complex the last couple of years – and we haven’t seen the end of it yet. For international companies, it’s even more challenging. Expanding into new territories means dealing with country-specific regulations and nuances around key payroll elements like tax, benefits and incentives. Issues arise from a lack of local knowledge or the absence of an expert who can advise you on best practices and gets in contact when there is a change to local law. The key to making all these (international) compliance troubles go away: let someone else worry about them.

    A cost-effective tech makeover

    If your payroll still depends on disparate, on-premise payroll systems the words ‘digital’ and ‘transformation’ probably cross your mind on a daily basis. Outsourcing can be a welcome shortcut to massive amounts of data, next-gen tools and vast expertise – with benefits for both HR and employees.

    For HR: decentralised HR teams benefit from cloud-based solutions to manage payroll data, ensuring better data visibility. Moreover, the integration of payroll with other HR modules can increase efficiency and reduce errors. For example, updates such as promotions, redundancies or terminations are automatically made available to payroll.

    For employees: hybrid workers can access payroll data or their e-payslips through your partner’s self-service applications, which should also offer a consumer-grade user experience. With the same tools, they can easily register time and attendance, which automatically flows to the payroll module – resulting in on-time and correct payments, crisis or not.

    Guaranteed continuity

    HR and payroll expertise is often stocked in a few people’s heads. The obvious risk: whenever a key payroll officer drops out, he or she leaves a big void that’s increasingly difficult to fill. And no matter how well you manage your team, your most important assets can also get sick, go on holidays, become parents or move on to new professional challenges. By outsourcing certain payroll tasks, you’ll proactively save yourself a lot of headaches. Your partner will appoint a go-to expert for your HR team, and will always have back-ups on hand to ensure continuity.

    Lower costs in times of need

    Were you expecting costs to be one of the cons? Think again. Here’s a glimpse of how payroll outsourcing saves money:

    • Salary costs for in-house payroll officers
    • Training costs to keep up to date with laws and regulations
    • IT infrastructure and/or licenses for payroll processing engines
    • Costs related to human errors and data breaches

    As a result of the economic downturn – which has only just started according to some sources – you’re probably not only looking for ways to cut back on non-core activities, but also want to streamline your core activities, such as payroll. Paying a monthly, transparent fee to a payroll partner instead of establishing and maintaining an extensive in-house payroll ecosystem definitely fits the profile.

      3 cons of payroll outsourcing

      A jump in the dark with – basically – a stranger

      Unless you or your colleagues have significant experience with a specific outsourcing partner, choosing a third party is always a bit of a gamble. Maybe your partner has never dealt with certain aspect of your payroll, such as unionisation or bicycle allowance. Additional risks include that your partner’s payroll software doesn’t link well to your systems, that your sensitive data isn’t entirely safe, that it takes a lot of time to correct errors, that your partner goes out of business, that ... You get the gist. Thorough research and background checks are therefore indispensable. This checklist for payroll partners might be a good start.

      Paid services you don’t need

      Some payroll partners offer additional services and entice companies to contract them by offering combo deals. Other possible partners only offer structural business process outsourcing and might convince you to outsource payroll tasks you’d rather keep in-house, such as answering questions from colleagues. In any case, clearly define what you’re looking for to be armed against sly sales pitches. And above all, remember there are many types of outsourcing and trusted partners will always allow you to start out ‘small’ and hand over more tasks – or not – as your confidence grows.

      No build-up of in-house knowledge

      Turning to someone else for payroll expertise automatically means your own HR team will lose touch with how it’s done. In other words, if you decide to part ways with your outsourcing partner, chances are that you’ll need extra training to get up to speed – no way around it. On the other side, if your partner turns out to be worth the money, you’ll gain access to more expertise than you could have ever gathered on your own. In short, you’ll benefit from endless legal opportunities without stressing about compliance penalties. Again, good research is key. And a pro tip to finish off: contract a payroll partner who transparently documents their way of working, just in case.

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