Why do companies outsource payroll? There are a variety of reasons
While this article spells out reasons why companies outsource their payroll function, and we highly recommend you read about all of them, here is a quick list of the top four reasons:
- Time and Cost Savings
- Lower the Risk of Loss
- Improve the Security of Employee Data
- Allows the company to Focus on its Core Business
A key driver for outsourcing payroll is freeing the finance function from time-consuming and repetitive tasks filled with potentially costly legal potholes. By outsourcing the payroll function, companies can achieve a reduction in compliance time and costs, reduce risks, improve the security of their employee data, and have the wherewithal to focus on their core business.
Reason #1: To Achieve Time and Cost Savings
Moving to an outsourced payroll arrangement enables finance staff — normally dedicated to overseeing payroll accounting — to work on other areas of the business. With the responsibility of efficient data-entry and cross-checking for information accuracy transferred to a third-party provider, the finance function can allocate their time and resources towards higher-level company objectives.
Additionally, by outsourcing the payroll function, companies do not have to maintain a dedicated payroll system and can either utilize their payroll vendor’s system or more popularly, move to a cloud-based system. By using expert payroll services as part of a cost-savings strategy the number of specialized staff and headcount of the finance department can be significantly reduced, adding additional value.
Reason #2: Outsourcing Payroll Can Lower the Risk of Loss
Outsourcing payroll ensures that payroll is managed by experienced specialists in their particular field. Outsourcing payroll eliminates the costs and risks of hiring, training, and equipping new staff with time, technology, systems, and processes, only to see them leave the organization. By reducing responsibility for hiring and managing payroll employees, there is a lower risk of key employees leaving the organization which leads to loss of expertise and investments in employee development. The departure of such staff is not only a costly event for the company but also creates gaps in knowledge that will have to be constantly filled by new employees which undoes all the associated hiring and onboarding effort.
As a result of outsourcing their payroll responsibilities, companies also relieve themselves of risk mitigation responsibilities. By relying on a third-party to keep track of payroll, outsourcing allows a business to remain compliant with the latest payroll regulatory requirements.
Reason #3: Companies also outsource payroll to Improve the Security of Employee Data
Outsourcing payroll also allows companies to transfer the risk of the unauthorized access of employee data to the payroll vendor. For many organizations, securing employee and payroll data can be a costly endeavor, as methods of unauthorized access keep evolving, and the technology to reduce risks continues to advance. Payroll outsourcing vendors typically have a strong and robust IT system to safeguard against data theft and unauthorized access.
Reason #4: Payroll Outsourcing Allows you to Focus on Your Core Business
Companies can better expend their energy in areas of their business that makes most sense once the task of payroll is handed off to an external provider. The organization can apply their efforts towards their own core competencies. For instance, a restaurant or café that specializes in providing exemplary service to its customers will be better off spending their limited resources on their operations and customer service improvement. To process your own payroll, it is necessary to invest significantly to remain relevant with current regulations, on top of best practices and effective record-keeping processes to maintain a properly run payroll function in-house.
However, a company that decides to outsource payroll can invest time and money saved towards the business.
Why Do Companies Outsource Payroll? - FAQs
By outsourcing the payroll function, companies do not have to maintain a dedicated payroll system and can either utilize their payroll vendor’s system or more popularly, move to a cloud-based system. By using expert payroll services as part of a cost-savings strategy the number of specialized staff and headcount of the finance department can be significantly reduced, adding additional value.
Moving to an outsourced payroll arrangement enables finance staff — normally dedicated to overseeing payroll accounting — to work on other areas of the business.
By outsourcing their payroll responsibilities, companies relieve themselves of risk mitigation responsibilities. By relying on a third-party to keep track of payroll, outsourcing allows a business to remain compliant with the latest payroll regulatory requirements.
For many organizations, securing employee and payroll data can be a costly endeavor, as methods of unauthorized access keep evolving, and the technology to reduce risks continues to advance. Payroll outsourcing vendors typically have a strong and robust IT system to safeguard against data theft and unauthorized access.
How can IQ BackOffice Help? Learn about our Managed Payroll service and our full range of outsourcing services.
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Outsourcing Accounting Processes – Does It Actually Save Money?
