Benefits of outsource your payroll and When to start?
One of the first things new business owners often say to me is how
bewildering it can be getting their heads around all the different
aspects of running a business.
From marketing and IT to tax and finance, it’s a case of having to
quickly get up to speed on a huge range of things. For many small
businesses the only way to make sure that everything gets done right is
to outsource some of the tasks.
The type of functions that are frequently outsourced by small
businesses are ones that either don’t add any value, or require
specialist skills and knowledge that are not viable to employ someone to
conduct in-house.
The administration of the company’s payroll is one such function.
With a variety of outsourcing options available, from large established
payroll providers to smaller competitors, outsourcing your payroll can
offer a number of short-term and long-term benefits.
In this article, we look at some of the benefits of outsourcing your
business’s payroll function and when is the best time to take the
plunge.
1. Cost savings
When considering reasons for outsourcing any business activity,
cost-cutting is often what comes to mind first. The immediate savings
could be greater for startups that haven’t already purchased payroll
software or trained and recruited staff with the necessary skills.
There are still significant savings to be made over the long term for
companies who have invested to a degree in in-house payroll
functionality though. When the ongoing costs of good payroll software,
the time required for processing wages and managing paperwork and tax
liabilities are considered, however, it becomes clear that most SMEs
will be able to save by outsourcing.
Ultimately, the extent to which payroll outsourcing will cut your
costs depends on how efficiently you have been administering payroll
in-house. In the longer term though, outsourcing removes the variable
costs associated with staff recruitment and training, as well as
updating your own payroll software to meet compliance changes.
2. Saving time and resources
Cutting costs may be a primary factor for
outsourcing payroll administration, but many businesses also benefit from the freeing up of
time and resources.
A recent US survey
found that among those small businesses it surveyed who handle payroll
taxes internally, 27% report spending more than 6 hours per month and
10% report spending more than 10 hours per month on payroll.
As well as the potential costs of software, business owners also have
to consider the staff time being spent on
payroll administration.
Due to the nature of small businesses, senior staff need to be
particularly efficient with how they are spending their time, especially
if the business is growing rapidly. Outsourcing allows SMEs to refocus
the attention of key individuals onto more strategic areas of the
business that directly affect profitability, such as performance, client
retention and expansion.
3. Flexibility and efficiency
Payroll isn’t directly value-producing, but it is a fundamental
aspect of business operation. Unpaid employees are not going to remain
employees for very long, and regular incorrect payments have a
profoundly negative effect on staff motivation and morale.
In SMEs particularly, it is likely that a single member of staff will
be responsible for
payroll, creating an additional vulnerability if
that employee takes leave or is off sick. Outsourcing to a trusted
provider allows owners to effectively wash their hands of these worries.
Additionally, certain payroll providers can offer information
management and reporting services, allowing for unforeseen potential
efficiency increases that come from more accurate management
information.
4. Employee benefits
Some payroll service providers offer benefits to employees that small
businesses may not have access to under their own in-house system or
that they’re just unable to provide due to a lack of any economy of
scale.
These benefits include employee retirement plans and tax assistance
to help them understand the finer points behind their income and taxes,
including breakdowns of wages.
Even if employees don’t take advantage of such offers, the fact that
your business is offering them will help create a positive image of you
as an employer, whilst helping increase staff retention and morale.
To outsource or not to outsource
The benefits for SMEs of outsourcing payroll go far beyond simply
reducing expenditure. A fully outsourced payroll will allow you to free
up valuable resources that can be redirected elsewhere as well as reduce
the risk of fines from HMRC for non-compliance with tax laws.
Perhaps the most powerful benefit is the flexibility an outsourced
payroll gives your business to rapidly grow and expand its workforce,
without the worry of recruiting, training and retaining in-house payroll
staff and rolling out new systems.
So if you’re a startup or a young business looking to grow, then it
may be time you explored the option of
outsourcing your payroll.
