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Why you should consider Outsourcing Payroll Processing

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Payroll processing has always been a hectic task to perform. It's not something that requires an immense amount of skill but it definitely demands a lot of attentive effort to just maintain the paperwork. The size of an organization is directly proportionate to the number of its employees which then has a direct effect on the time it takes to complete payroll processing tasks.

You should consider learning more in-depth about payroll processing and What Task Business Can Outsource before you get into understanding payroll outsourcing's importance.

Understanding Payroll Processing

Payroll processing is simply paying your employee according to their respective salaries. Now that's just the surface part of it before the payment reaches the employee's hand you have to go through the calculation of the total wages based on attendance, make justifiable deductions accordingly, send payment stubs, make sure the amount is right for the state and federal taxes each pay period, and then you get to deliver the payout.

Was that complicated enough? There are certain provisions and regulations to be maintained given by the IRS Internal Revenue Service and the Department of Labor(DOL).

Cause of Payroll Processing Time Consumption

Almost everything about payment processing takes a lot of time but comparatively here are some of the tasks that consume most of the time:

  • Payroll taxes and deduction calculation

  • Manual Data entry

  • Employee information update

  • Payslip Distribution

However, an automated system can make all of this complicated work very easy and smooth.

Payroll Outsourcing

Payroll outsourcing is a service that a third-party company provides to the organization in which they handle all of their legal, and tax accounting tasks making sure that all of the payroll processing has been completed on time.

Payroll outsourcing and taking Financial Advice for Professional has become standard in today's date which is why it can be easily executed and monitored later using payroll processing software.

Payroll outsourcing Statistics 2023:

  • 60% of Small businesses handle their payroll on their own.

  • 37% of small businesses have at least one business process outsourced.

  • 12% of the organization worldwide outsourced their payroll completely.

Reasons To Consider Payroll Outsourcing

Many justifications have been given by business owners and accountants for outsourcing payroll processing to foreign accounting firms. Some of them are as follows:

Cost Efficient

The main motivation for outsourcing payroll for any business has always been cost-effectiveness. Every business tries to reduce its cost in any way possible and payroll functions are no exception.

Offshore outsourcing can make a huge difference due to the lower wage and salary rates and might as save a lot of work and money at the same time for the company. Even when payroll is domestically outsourced, this may still be the case. For example, a firm with headquarters in New York or San Francisco that manages payroll internally must pay "big city salaries" to recruit the best personnel for this position, much like the rest of its internal workforce. The cost of carrying out the duties that have been outsourced typically decreases if many of the hours of work may be performed instead by outside workers in a location with a lower cost of living.

Complete Focus on Core Business Functions/objectives

Business is organized to perform certain tasks and every business has its own agendas and objectives that they want to achieve on a targeted period for most organizations performing payroll functions in-house mean nothing more than an important housekeeping duty but that's not their business motto it is something completely different than their business while a payroll outsourcing provider specializes and is opened only to do the payroll functions and nothing else.

Reduce Distractions for Professionals

Payroll functions can be handled by providers who specialize in efficient Payroll Management, which is another reason to choose to outsource. The majority of businesses consider internal payroll processing to be little more than a necessary housekeeping chore because their core competencies lie elsewhere. On the other hand, a "payroll service bureau" or supplier of payroll outsourcing may only handle payroll-related tasks. If it does provide more services, they are probably in related fields.

Error Reduction

As opposed to the numerous activities and responsibilities that an in-house team must do, the offshore team is solely responsible for carrying out the tasks with the highest level of precision. Processing payroll can be challenging. Complicated payroll calculations can occasionally result in mistakes that result in incorrect payments or tax fines. The offshore crew is experienced in handling challenging payroll calculations.

Improved Security

Payroll is considered a very complicated task as it is to be handled with care and complete attention. As payroll not being the main objective of business we can get some security problems like:

  • Risk of identity theft

  • Embezzlement of funds

  • Tampering with company files

  • virus, malware, or hackers in in-house payroll software

All of this drains a lot of energy and time from business employees and employers. But, outsourcing services can eradicate all of these problems as they specialize in the payroll fields and will have no motive or intention to sabotage their own client’s company and even if they do make errors regarding the payroll process they will have to take sole responsibility and compensate accordingly.

Avoid IRS Mistakes

For late or incorrect filings and payments, 40% of small businesses in IRS states pay an average penalty of $845 per year. A minor error or omission in setting up the payroll account can be very costly for a small business. They can't fight government officials and waste their resources on a pointless courtroom battle. One minor error in submitting taxes on time can result in a lock on your company.

Outsource companies like Online Bookkeeping Services are always up to date with the new federal, industrial, and local tax rules and regulations and design the payroll of the company according to the changes made in the rules. This way companies can avoid heavy penalties and avoid any kind of tax anomalies.

What Should You Keep in Mind When Outsourcing Payroll Processing?

Before you outsource your payroll processing, consider the following points. This step-by-step tutorial will assist you in ensuring that you have outsourced your payroll to the correct vendor.

Step-1: Company Selection

Firstly, the most important step is to select the right company. The selected company must be able to handle complex calculations and apply valid tax deductions. You should check the company's previous works regarding payroll processing and their success rate as well as the error rate. Always make sure that the selected company is compatible with the level of your business payroll.

Step 2: Documents Sharing

After you have successfully selected the company, you are required to share all the documents of the selected company which are relevant to the payroll processing. The list of documents which is required to share with the selected offshore partner:

  • Corporate Policy

  • Employee Handbook

  • Timeline of Business Regulatory Shifts and Time Off

  • State-Specific Tax Regulations

  • W-4 and W-9 forms

  • Bank Documents

Step 3: Allow payment access or authorization

The selected outsourcing company will also be distributing the salaries to your employees at a scheduled time. And, to perform that task they are to be provided with payment disbursement access or given paycheck approvals. This step is very crucial as payment disbursement is known to be extremely time-consuming in payroll processing.

Step 3: Valid Time Sheets

Timesheets are one of the fundamentals that help to maintain discipline in the organization. Salaries deductions are made by evaluating the time sheets of the employees hence, you are required to provide well-recorded timesheets to the payroll outsourcing company. If the software is being used to keep the record of timesheets then your payroll outsourcing companies must have provision for that too.

Bottom Line

In the present context, most of the big or small companies are outsourcing their payroll. On a yearly basis, organizations blow billions of dollars just to transfer their workflows to offshore firms. Realizing the growth of the outsourcing market, firms are upping their game and finding new ways to perform payroll outsourcing in less time and at less cost.

While the large footprint of outsourcing implies that many jobs in wealthy nations are shifted abroad, underdeveloped countries benefit economically from outsourced employment.

Furthermore, In many developed countries, there has been a large influx in the percentage of professionals turning to independent freelance work which adds another layer to the growing outsourcing landscape.


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