Outsourced Payroll Services

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Managing payroll is one of the most time-consuming tasks that every business has to deal with. It gets worse as the business grows and more employees join the organisation. Unfortunately, this is not one of those functions that directly impact the company’s growth. In fact, it takes away from resources and time that could be used in growing the business.

Outsourcing payroll services can be a game changer for businesses of all sizes as long as you get the right outsourced payroll provider for your business. Although the practice is picking up steam, many firms are not sure how it works or the kind of payroll tasks you will be outsourcing. Understanding it could make it easier to accept and provide you with the many benefits that businesses before you have realised after opting for outsourced payroll.

What is Outsourced Payroll?

Outsourcing payroll involves hiring a third-party service provider to handle your organisation’s payroll and related tasks. The third-party vendor offers many services that suit different types and sizes of benefits, such as processing payroll, managing taxes and managing employee benefits.

Specifically, outsourced payroll includes the following functions;

  1. Payroll account setup – Payroll providers use software automation to enhance data accuracy and efficiency. The technology also helps to automate payroll processes, helping reduce manual work and human error. When you first outsource payroll tasks, the provider starts by creating a payroll account using the employee information you provide.
  2. Payment method setup – You decide how your employees and contractors receive payment. Payroll solutions let you set automatic payments on biweekly or monthly basis. However, an outsourced payroll provider can also send payments using direct deposits and other commonly used distribution methods. Whatever your choice, the service provider will set up the payment schedule in its system.
  3. Attendance tracking – Outsourced payroll providers use automated software that helps employees keep track of their start and end times. They can record lunch breaks, overtime hours and leaves to make salary calculation a breeze. The provider also monitors the system for data accuracy and makes necessary corrections.
  4. Wage calculations – your outsourced payroll team will add employee wages at the start. The system will then automatically compute wages, adding and deducting according to employees’ tracked attendance. The third-party team also double-checks the software for payroll accuracy to ensure proper salary disbursements.
  5. Employee deductions – Workers must contribute to legally mandated benefits such as pension and health insurance. Your payroll provider inputs the corresponding benefit contributions so the system can automatically deduct them from the employee’s gross salary.
  6. Salary disbursement – The provider releases the right salary payments to the employees. Its primary goal is to ensure employees get paid accurately and on time.
  7. Tax filing – Some outsourced payroll providers will also help you handle tax-related matters. They will calculate, file and pay taxes with the proper authorities, helping you remain compliant with all the relevant authorities.
  8. Payroll security and compliance – Outsourced payroll providers must prioritise network security and regulatory compliance to ensure the safety of the data they handle. Because the provider handles the company’s finances, they must secure the network and protect employee data to avoid breaches and cyberattacks.

An outsourced payroll provider is capable of handling all these tasks. But usually, organisations only allow the provider to manage certain functions only. An organisation might have an in-house payroll team but entrust tax-related matters to third-party providers.

How Does an Outsourced Payroll Work?

Most firms are reluctant to use payroll outsourcing because they’re not certain how it works. It can vary slightly depending on the type of outsourcing approach and provider you use, but overall, it involves the business delegating payroll-related tasks to reputable third-party providers.

Your contracted provider uses specialised software to manage the payroll process, effectively saving you time, money and effort that you can better spend on other core business aspects. Also, the payroll service provider understands tax and labour laws and regulations to help your business and avoid costly mistakes.

Here is a generalised approach to how the process of payroll outsourcing works;

  • Hire the payroll service provider – The process begins when you hire someone best suited to your business type, size, industry and payroll needs.
  • Create an agreement – You and the hired payroll provider will agree on the terms and conditions of the service and the cost of outsourcing the services. The details are included in a legally binding agreement that outlines the working relationship between the two entities.
  • Set registrations – The payroll provider will ensure you have the necessary registrations and licenses for payroll management.
  • Collect business and employment information – You will provide the third-party partner access to employee information necessary for managing payroll. The provider will add the information to their platform or software to kick off the management process.
  • Process payroll regularly – Your payroll provider tracks the employees’ working hours, calculates wages and disburses salaries according to the terms of the agreement.
  • Report to client for transparency – Your payroll provider can send regular reports for detailing payroll management and business performance or provide an option where you and your employees can log in to view reports and the progress of the service.
  • Remit taxes and contributions – Your payroll provider will submit payments and documentation to HMRC and other government agencies and tax authorities within the required timeframes.

The onboarding process for outsourcing payroll might look slightly different depending on your chosen provider. Some providers are more immersed in providing a high-end customer experience, providing seamless and timely processes. In contrast, others rely more on the firm to provide and upload the necessary information. Additionally, the type of services you seek from the provider will dictate how the onboarding process and the entire outsourcing process work.

Payroll Outsourcing Service Options

You can choose from various payroll outsourcing options, from the friendly neighbourhood bookkeeper to hiring a global big-name payroll outsourcing service. Depending on the service option you choose, the cost ranges widely to thousands of pounds per year depending on the size of your firm and how much work the provider has to do. Common types of payroll outsourcing options include;

Outsourcing payroll to PEO

A professional employer organisation or PEO is a co-employer, meaning you and the PEO will split employment duties. You can manage the day-to-day operations of the business while the PEO handles HR, payroll and benefits processing.

If your employees have questions about their last paychecks, they can call and speak to a dedicated team member who knows and understands your business. Also, if your company receives a notice to garnish an employee’s salary, the PEO will work on filing the garnishment.

A PEO actually hires your employees and then leases them back to you. It adds your employees to a pool with its other client’s employees to drive down benefit costs so it can offer affordable premiums.

This outsourced payroll option is great for small businesses with a small budget and those who want to keep costs low.

Outsourcing payroll to a national bookkeeping service

This is the best option for large enterprises looking for top-notch payroll service providers. Most reputable outsourced payroll services offer accounting and payroll services, making business operations easier to track and supervise by having many aspects of your business managed in the same place.

These services usually offer the same features you would get from a local firm but have a few extras, like year-end financials, that could make all the difference.

These bookkeepers are usually removed. Therefore, most of the communication is done on the phone or via the Internet. In addition, any documents you or your bookkeeper need to send each other must be done electronically. For tech-forward businesses, this is an excellent option.

A local bookkeeper or accountant

Another affordable outsourced payroll option is to go for a local bookkeeper or accountant. If you already have someone managing your bookkeeping, you can ask them if they can run your payroll, too. This is commonly done using reputable software and tools like QuickBooks Payroll.

Using local bookkeepers or accountants is an excellent option for business owners looking for a personal experience. This allows them to interact face-to-face with the team that is working on their payroll and HR without hiring a full-time in-house team.

Benefits of Outsourcing Payroll Tasks

Payroll is an integral part of every business. Unfortunately, many businesses still struggle with the payroll functions. They use outdated payroll methods like pen and paper to track finances, and many small businesses even lack an accountant or bookkeeper.

Outsourcing payroll services is one of the ways a business can fast-track its growth, overcome its challenges and become more efficient. The provider offers advanced technology and enhanced data security, among other benefits the business can take advantage of, including the ones highlighted below;

Save on operating expenses

Cost reduction is one of the top reasons businesses outsource payroll services. A payroll department can be expensive to run. Hiring payroll officers often results in high labour and maintenance costs. Investing in automated software and other payroll resources is also a costly venture.

Outsourced payroll allows companies to save on operating expenses while making the most out of the service package and getting access to professionals. Your selected provider employs professionals and resources for your payroll. You pay them based on the agreed pricing structure, which, in most cases, is a fraction of what it would cost to start your own in-house payroll team.

Tap into professionals and experts

Companies consider expertise a valuable commodity in the business world, and payroll isn’t any different. Many small and medium businesses don’t have the budget to hire and maintain experts in-house. Outsourcing gives you access to experts hired by the payroll provider. You get access to bookkeepers and accountants who are tasked with tracking your employees’ working hours and remuneration. You also get access to other professional services such as accounting and tax filing and payments.

Leverage payroll software technology

Outsourcing payroll functions allows the organisation to leverage the latest technology for a competitive edge. By leveraging the latest payroll technology, companies can enjoy payroll automation for service efficiency and data accuracy. Working with a third-party provider is one of the ways you can capitalise on the technology without incurring the cost of upgrading the system yourself.

The company can enjoy various benefits like easing operations using payroll software, among other benefits such as seamless and efficient integration, and it can also improve productivity.

Guarantee payroll data accuracy

 Improper payments for services rendered can be frustrating, and it could hurt employee morale. It’s even worse when the employee gets less than what is owed to them. Such circumstances are common when payroll officers fail to update employee information or commit errors in calculations.

Companies that outsource payroll services to professional, experienced and reputable providers avoid these problems. The vendor works to improve payroll functions and reduce errors through automation and other checks and balances.

Leading payroll service providers can guarantee 99% data accuracy by using automated software and employing professionals to double-check input.

Improve payroll process efficiency

Aside from getting paid properly, employees also expect to be paid on time. Receiving their salaries late can demotivate and affect overall productivity, leading to a high employee turnover rate. Improving payroll efficiency is vital to addressing these challenges and maintaining employee morale.

One of the best ways to achieve this is through outsourcing. Providers hire experts to handle payroll and use a high level of automation to accelerate the process, ensuring employees receive their pay on time every time.

Boost employee morale

Employees are a vital part of the business. They are valuable assets that keep the business afloat by performing all the day-to-day tasks that bring in the money. Taking good care of the employees should be a top priority for every successful business so they can take care of the business.

Late, incorrect salaries can work against this mission, reduce productivity and decline revenue. Outsourcing payroll services ensures timely and fair compensation to ensure quality performance and meeting key metrics.

Maintain business cash flow

The goal of every company is to earn more than it spends. Payroll significantly impacts your cash flow since you pay employees, and they make money for your business. That said, payroll outsourcing is one of the best ways a firm can manage its cash flow.

Outsourcing can help the company stay on top of its payroll process, pay employees on time, avoid hefty fines due to non-compliance and avoid unnecessary expenses. Also, proper compensation encourages employees to be more efficient and productive, making your business more profitable.

Focus on core business functions

Understandably, companies prioritise their core revenue-generating tasks. Although every department is crucial to the business’s operations, administrative tasks like payroll tasks require your utmost attention. Otherwise, you risk compromising employee salaries and facing negative consequences.

Payroll outsourcing helps companies focus on core operations while having the comfort and peace of mind of knowing that they have professionals handling their payroll tasks accurately, efficiently and seamlessly. Management can then use that time and energy to focus on other core functions of the business.

How to Get Started with Payroll Outsourcing

Outsourcing payroll is a huge decision for every business that needs to be taken with the seriousness it deserves. The quality of service and experience you get from the service depends on your ability to choose the right provider to partner with. Here are some key steps to getting the best start with payroll outsourcing.

Identify your payroll needs

Before you start looking for a payroll service provider, you need to start by understanding the specific requirements for your payroll operations. It helps you to determine the type of payroll provider you need for your firm. Some of the factors to consider while assessing your needs include;

  • Payment options – Determine whether you need to change your payment method. If your current method works and is efficient, ensure the provider you work with offers the same method.
  • Features and services – List the payroll features you need based on your business needs. Time and attendance tracking, employee benefits management, tax withholding, and payments are among the most sought-after, and you need a provider that offers such services.
  • Tax and regulatory compliance – Every business is subject to tax and labour laws and regulations. You need a payroll provider that stays on top of all your tax obligations and ensures you meet all regulations and requirements.
  • Service cost and value – The provider you choose to work with should make outsourcing cheaper and more cost-effective for your organisation. The cost of the service should balance between cost and value.

Determine payroll tasks to outsource

After auditing your business needs, the next step is to consider the tasks you want to outsource. You can choose to entrust your entire payroll operation to a third-party vendor or outsource some of your tasks. Some of the services you can get from the provider include the following;

  • Collecting employee information
  • Setting up accounts for payment
  • Tracking working hours
  • Computing employee wages disbursing employee salaries
  • Managing benefits
  • Reporting, filing and paying taxes

By outsourcing these tasks, you can free up time and resources, allowing you to focus on other business aspects. However, it’s critical to remember that the services you choose to outsource depend on the size of your business and your budget.

Look for outsourced payroll providers

Now that you have identified your payroll needs and the tasks you need to outsource, you can begin your search.

There are several effective methods you can use to find payroll service providers, such as;

  • Online search – Searching online is the most commonly used method to find payroll providers near you or globally. With a quick Google search, you can get a list of prospects that you can start digging into to find out more about them and if they are good for your business. You will also find other vital details like the terms and pricing of the company.
  • Referrals – This is a less tedious approach to finding providers. You can ask business owners and other professionals for referrals. It’s even better to find referrals from businesses in the same industry as you. You can get recommendations from reliable outsourced payroll providers who have worked or are working with them.

Narrow down your options

Once you have a list of potential payroll providers, filter your options by considering these vital factors;

  • Payment process control – Check how the prospects monitor payroll, streamline processes and ensure on-time and accurate service delivery.
  • Analytics and reporting – See how the providers collect, analyse and report data to their clients. Payroll analysis and reporting are vital to your operations and must maintain a high standard of accuracy and efficiency.
  • Regulatory compliance – Verify that the prospects understand the tax laws and regulations that apply to your business. If you’re a local business, check if the provider understands local laws and the same for global businesses or businesses with workers outside the country. If not, it could lead to hefty fines, penalties and legal implications.
  • Security and privacy – The service provider should be on top of their network security and data privacy. They will be handling critical information and finances for your organisation, and they need to ensure round-the-clock protection.
  • Payroll workforce – The provider must employ highly skilled professionals who are expert bookkeepers, accountants or tax specialists.
  • Software technology – Payroll automation is a big part of outsourced payroll services. The tech solutions that your provider uses will have a huge impact on your operations, security and efficiency. That’s why you need to work with technologically savvy service providers that have the best software technology.
  • Employee experience – check client and employee feedback about the provider’s services. Focus on accurate and timely delivery of payroll and the general experience the provider offers.
  • Business reputation – Reputation mirrors a company’s credibility, reliability and competency. A good reputation, therefore, indicates quality service.

These factors should help you hire the right outsourced payroll provider for your business. Once you make the right hire, the other steps will be about maintaining a good relationship with the new provider.


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