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Is outsourcing payroll only about cost savings?

Blogs Payroll

Any discussion on outsourcing payroll will always have one question: What will be my cost savings on this? Understandably, the cost is a critical factor that key decision-makers in any organisation will consider, as cost-savings directly influence the business’ profitability.

The good news is, outsourcing payroll is already proven to be more cost-effective in the long run: companies who outsource save an average of 18% more than those who manage payroll in-house. But is this cost-saving the only consideration in transforming your payroll function?

Here are four other factors to consider in outsourcing your payroll:

Reduced risk through improved legislation compliance

“Organisations may go global, but payroll will always remain local,” Inna Wahlberg, General Manager for Ascender Asia Services shared in a recent webinar. Payroll is complex, especially in the Asia Pacific. With over 49 recognised sovereign states and 4.6 billion people with 57 official languages, APAC’s regulatory environments evolve quickly and need constant monitoring. In 2020 alone, there have been 276 legislative changes impacting payroll and HR, 85 of which were COVID-19 related changes, and most markets have been given very little lead time before effectivity. Companies operating across multiple countries have their work cut out for them in ensuring their payroll is up to date with these legislations, since non-compliance can mean potential fines and adverse publicity.

Outsourcing payroll can help reduce this risk by having a trusted payroll vendor to consult and advise on legislation and compliance. Payroll vendors often have their in-house compliance team to research and ensure their people, process, and technology are all up to date. Payroll vendors often have their in-house compliance team to research and ensure their people, process, and technology are all up to date.

Employee engagement

Payroll has a direct impact on a company’s wellbeing and culture. In a study conducted by the Workforce Institute, 24% of employees start looking for a new job after the first payroll error, going up to 49% by the second mistake. Employees care about their pay, and paying them right is a crucial driver to employee engagement.

But payroll being a fundamental process does not mean it is an easy process. Compliance to legislation, as mentioned earlier, is just one factor; the whole payroll process is time-consuming, and as a business grows, the complexity only grows longer. Outsourcing payroll shifts these administrative tasks to the experts—who are bound by service level agreements to ensure the pay goes out accurately and on time—giving internal HR teams more time and space for strategy, training and work/life balance.

Simplification of process and vendors

Outsourcing payroll addresses the time-consuming and complex payroll tasks your team handles, but switching from in-house to outsourced delivery is not simply a ‘lift-and-shift’ event. Moving to this delivery model means organisations will have a chance to review, standardise and optimise their process. Doing this is particularly beneficial for multinational organisations, where almost 45% of businesses have low to limited levels of standardisation across their global payroll process.

It may sound like hard work, but it is a great opportunity for you to review your existing process. For multinational corporations, outsourcing the different country payrolls to a single provider with the right capability across various localities can help simplify the landscape further: fewer contracts, vendors and languages to deal with mean better time savings and yes, cost savings of up to 32%.

Business continuity

COVID-19 has brought business continuity into the spotlight, exposing gaps in crisis management in many organisations. NTT’s APAC 2020 Enterprise Risk Management Readiness Survey Report showed that 60% of businesses were under-prepared or only somewhat prepared with their business continuity plans. “In the early days of COVID-19, we saw a rise in an urgent inquiry from some of our On-Premise and SaaS clients: ‘If something happens, can you step in to make sure the pay goes out?’” Sandy Forrest, General Manager for Ascender Public & Enterprise Services, shared in Ascender’s ANZ webinar. “Clients are talking about the current situation and asking, how do I backfill my payroll manager or payroll team should they get infected? With no end to the pandemic in sight yet, how long will we be able to do this?”

Partnering with a trusted vendor to manage payroll can give organisations peace of mind, as payroll providers have their continuity plans to ensure they meet their service level agreements during a crisis. “Outsourcing is a long-term view,” Forrest adds. “And it makes something as complex as payroll easy in the background.”

Payroll is people to people

Ultimately, outsourcing payroll is not just about what you can cut off from your cost, but what you can gain for your people.

“When planning to outsource payroll, look for the vendor’s responsiveness, timeliness and what kind of partnership they give to their clients,” Neil Thompson, Chief Financial Officer at Ascender, says. “Cost will always be important, but in the end, payroll outsourcing is a strategic decision to build a partnership with your trusted vendor for better risk management and employee engagement—things that are not necessarily economic in nature.”

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