When it comes to running a business with employees, payroll stands right alongside taxes as an absolute must-do. Payroll is also the foundation on which employee relations are built. For these reasons, most businesses don’t give as much thought to their payroll processes as they should. They just do it the way they’ve always done it.
Payroll requires complete concentration and flawless execution. It also demands attention to any changes in tax code, withholding regulations, as well as the filings to all the relevant jurisdictions. If HR and/or Finance are dropping the rest of their duties to run the payroll when it is due, the staff utilization rate may look good, but workflow and productivity issues can arise.
Once a company reaches a certain size, it can afford dedicated payroll personnel to tend to the details. However, this also makes payroll a dedicated cost center, and one that is likely underutilized, as payroll is not a constant daily workstream for small to medium-sized businesses.
At this point, a case can be made for outsourcing the process based on cost-savings. But if a company doesn’t want to overhaul their entire payroll process, a specific form of outsourcing may make more financial and operational sense: nearshoring. By supplementing in-house resources with payroll-focused personnel, a company can enjoy a host of benefits along with cost savings.
What Is Payroll Outsourcing?
The most common type of payroll outsourcing is a service bureau compensated at a rate equal to a percentage of the pay run. They do all the necessary tasks based on time reports supplied by the client. Their responsibilities include:
- Wage and salary calculations
- Deductions and withholdings
- Tax filing
- Reporting and recordkeeping
- Direct deposit and paychecks
- Garnishments
- Compliance management
While these service bureaus necessarily work closely with clients, they are independent entities. They use their own systems and may prefer, or even require, clients to perform payroll-related tasks within those systems. Because they are 100% focused on processing payrolls and do it with specialized software, they can bring efficiencies to the process that lower the cost. Some of those savings are then passed along to their clients.
Bringing in specialists also comes with several other advantages. And those go beyond cost-cutting.
Beyond the Balance Sheet: The Hidden Value of Outsourcing Payroll
When you have specialists handling your company’s payroll, your whole company benefits.
1. Reclaiming Valuable Time to Focus on Core Business Activities
Performing payroll runs in-house with HR or financial generalists drains time and resources. Those people must either focus 100% on the task – to the exclusion of their other responsibilities – or run the risk of payroll errors. And such errors can be devastating for a business.
That time would be better spent booking revenue and developing the company’s workforce. Having payroll specialists handle that task puts the right people in the right roles.
2. Navigating Compliance with Confidence
While getting the paychecks right for each employee is critical, there are equally complex and critical tasks associated with payroll runs. Processing the associated taxes is the most obvious, and those tax rates and reporting requirements are subject to changes that must be constantly monitored and implemented.
Companies with employees who live or even work outside the home office’s jurisdiction may be subject to different tax and reporting regulations in their home locality. If they reside outside the country, the complexities multiply. All these must be taken into account for each pay run. Payroll specialists are better positioned to help companies stay up to date with the applicable laws, reducing the risk of penalties and legal issues.
3. Reducing Payroll Errors
According to analyst site G2, companies make an average of 15 payroll errors per pay period. In 80% of cases, employees themselves discover the errors in their paychecks. The dollar cost of such errors is almost irrelevant compared to the damage to employee relations.
Mistakes can happen for a number of reasons. But employing payroll specialists reduces the chances of worker errors and increases the likelihood that anomalies in time entry, pay rates, or applicable tax rates will be spotted and corrected before the checks go out.
4. Scalability and Flexibility for Growing Businesses
Having payroll outside the core office operations isolates it from the challenges of business growth or retraction. Management is free to reassign resident staff or adjust their responsibilities without concerns about the impact on payroll processes.
If demands on payroll operations expand, that’s good news; it means the business is growing! There is no downside, because the outside payroll operations can expand incrementally; they are not necessarily obliged to add headcount.
5. Improved Employee Satisfaction
Of course, getting the paychecks right is a baseline expectation. But – if they prevent even one error, an outsourcing provider contributes greatly to employee satisfaction.
Beyond delivering value on payday, having outside payroll and tax compliance expertise can be valuable in helping employees understand their paychecks whenever they have a question. This makes for happier employees and removes that burden from the in-house team.
6. Strategic Insights and Reporting
As a trusted third party with access to some of your most important operational data, a payroll outsourcer is ideally positioned to gain insights into your employment-related finances. While a reliable outsourcer will never divulge proprietary information, they can speak to trends and management tactics they identify that may be of value to management.
In this way, outsourcing payroll administration can become a strategic factor in budgeting, forecasting, and workforce planning.
Outsourced Payroll vs. Nearshore Talent: What’s Best for Your Business?
Given all the benefits that outsourcing payroll delivers – beyond cost-savings – the switch may seem like an obvious decision. But the need to synchronize in-house operations with an outside company may present its own set of challenges. And, if that outside provider requires the adoption of their software and processes in order to do their work, the change may be too big of a lift.
A better solution may be to tap an outside source for the necessary talent, but have them work as an extension of your organization, using your systems. This can eliminate the need for training on new software or altering procedures that the rest of your company already knows and follows.
By employing outside talent in this way, a company can gain all the advantages of outside expertise and dedicated attention to payroll processing while retaining more control and visibility into the process. This solution also comes with some additional advantages.
Enhancing Data Security and Confidentiality
By working on your systems, with all the necessary access controls, and according to the protocols established by your IT team, you are assured of the same level of data security you currently exercise. Also, the likelihood of information being lost in transmission is greatly reduced.
Access to Expertise Without Overhead Costs
Engaging outsourced payroll specialists without contracting an entire company also eliminates the need to provision them with equipment and office space. And, while training will always be necessary to familiarize new people with your organization and systems, those people will not require all the other time and attention that goes with onboarding a new employee.
Solvo: The Nearshore Advantage for Your Payroll Operations
Once you understand the case for engaging outside talent to perform payroll tasks, the next question is: Where do you find them? That will bring you to Solvo. Solvo is one of the world’s leading nearshore Business Process Outsourcing (BPO) companies.
Nearshoring delivers remote services with talent from more cost-effective geographies that align with U.S. working hours and cultural norms. Solvo has refined the model to serve as a seamless extension of client operations. Clients are frequently astonished by the caliber of talent available and the diligent work ethic, especially when compared to the candidate pool in the domestic job market.
Because they connect directly to client systems and work according to client procedures, Solvo pays fierce attention to cybersecurity and data protection. They comply with all your security protocols and procedures, and the Accounting solutions practice gets added scrutiny for financial safeguards.
If you’re ready to re-evaluate your payroll operations – because you want to maximize your business’s performance or you just want to save money – contact Solvo Global to discuss the benefits of outsourcing payroll for your company.
