Payroll is one of the most critical departments of a firm. In terms of finance and accounting, payroll is the sum total of benefits, compensations, perks and deductions of salaries of all the employees in a company. If there is no fixed system to calculate wages or salaries of employees, it would be cumbersome for the company to handle payment of salaries leading to chaos in the financial department of the firm. Besides that, payroll taxes are another important feature of payrolls that affect the net revenue or income of the company, at the end of the fiscal year. That is why companies need to maintain an effective payroll management system. For large firms and companies, outsourcing of payrolls has become a norm in the recent years. Why has outsourcing payroll become so popular? Are there any risks associated with it? Let us find more about it, in the following paragraphs.
Outsourcing Payroll Pros and Cons: An Overview
Companies use to develop infrastructure and IT services in their offices to tackle the task of payroll on their own and by hiring a team of accountants. Another option is to outsource the payroll work to an expert company and eliminate a major chunk of work for the company. Nowadays for several reasons, outsourcing payroll is a quite a common business practice amongst small to large-scale companies.
Outsourcing Payroll Pros
There are many benefits of outsourcing payroll work to a third party which has specialized in it. The most vital of them is the cost-effectiveness of outsourcing works. Establishing an in-house IT infrastructure, hiring a team of accountants and managing a payroll department means a lot of work for the company. Outsourcing eases the burden of long and tedious works of calculation of payroll for the firm. The human resource and money invested an in-house payroll process by the HR department can be utilized in other productive works.
Another biggest merit of payroll outsourcing is that it helps the firms or companies in keeping a track record of their expenses and earnings. When done within the company, it may happen that several expenses go unnoticed or unrecorded. When you are paying money for what you need, it is a general tendency to keep a track record of it. Outsourcing helps in keeping a detailed account of the payrolls which is very important for any firm. Since payroll also involves tax component, only experts in it can handle all nitty-gritty associated to it. Lastly, outsourcing streamlines the entire task of payroll management, as it is in the hands of experts in that field and hence, firms can expect excellent results, with high performance.
Outsourcing Payroll Cons
There are some risks of outsourcing payroll tasks to a third party. Since payroll works involve allowing access to sensitive and private information of employees to third parties, some firms do not regard it to be safe. Your employees may not like the idea of outsourcing payroll work outside the firm's vigilance because, it is a matter of their privacy. One of the other outsourcing payroll cons is that not all outsourcing deals are very successful, even if the cost-effectiveness may be very high. If you don't hire an authentic and experienced company in this field, your returns may not be worth your money paid to an inexperienced company.
The threat to privacy and lack of direct control on an outsourced business process can often make many companies to reconsider outsourcing and its benefits in the long run. However, it is a fact that there are many companies that are reputed in this field and have an excellent track record of high customer satisfaction. Ensure that you research well and get to know as much as possible about companies in this business before choosing promising one as your payroll task handler.
Knowing both sides of the coin, that is, outsourcing payroll pros and cons may have given you an insight about this cost-effective and in-demand business method, if you intends to lessen the burden of work of your HR department. Depending on your business needs, you have to weigh for yourself, whether you want to outsource your payroll process or you wish to do it within your company.