Manish Speaks: The Case for Outsourcing Payroll

Payroll is typically seen as a necessary and important but non-value adding function in a business. As is with all other non-strategic function, the case to outsource payroll is more critical and urgent further up an organization’s hierarchy:
What does Payroll mean to various stake holders:
To the Payroll Administrator

  • Mundane and routine job
  • Not a very rewarding and career enhancing function
  • Not appreciated and respected
  • No opportunity for continuous learning curve
To the HR Manager/Director

  • Overly dependent on the administrator’s skills and knowledge
  • Risk of unrecorded system errors and regulatory non-compliance issues
  • Staff turnover can be disruptive and at times, fatal to the business
  • Confidentiality of payroll cannot be contained if handled in-house
  • Non-core and resource intensive function
To Finance

  • Payroll is a Non-core function.
  • The investment in technology and other resources is constantly on the “up” and can be better utilized.
  • Guarantee of Confidentiality is an issue.
  • Need to implement additional checks and balances to ensure accuracy of every payroll.
To the Employees

  • Cannot understand why HR cannot drop everything else and respond faster to ad-hoc employee queries.
  • See HR as an administrative back-office only.
  • Prefer HR to deliver more strategic and higher-end services to employees.
To the CEO

  • Not a function that adds value or revenue to the business.
  • The business needs every body to be a Profit Centre.
  • HR should focus 100% on Strategy and People Development.
In recent years, the number of companies who have outsourced non-core functions has grown significantly. A number of administrative functions in HR as well as Payroll were correctly identified as most beneficial to outsource.

But in a traditional society, what’s driving these organizations to outsource their Payroll? Here’s a dozen reasons given by companies who have outsourced to Propay Partners over the past 15 years, not necessarily in any particular order. 

  1. Confidentiality or the lack of it. 
  2. Continuity of Business due to staff turnover in the Payroll department. 
  3. Payroll Audits are even more questionable when done by the same team processing your payroll; collusions in payroll have been known to happen. 
  4. Lack of Regulatory compliance is a common issue lamented by almost every company. 
  5. Cost of in-house payroll increases year-on-year; cost elements include people, technology, vendor support, recurring monthly stationary, space, time, etc and other intangibles like compliance, confidentiality, control, continuity, etc... 
  6. Regulations such as Sarbanes Oxley that apply to companies whose global reporting are subject to SEC regulations in the US, see the need to outsource to stay compliant. 
  7. Resourcing - payroll is a less sought after job and most graduates who take up the role, tend not to stay. 
  8. Loss of Opportunity - the chances of getting caught in a loop is higher when payroll is in-sourced; outsourcers are able to quickly deploy efficiency and automation much quicker and at lower costs. 
  9. Changing Business Demands - changing business conditions need dynamic response; outsourcers respond quickly with immediate solutions and best practices. 
  10. Legacy Systems – typical shelf-life of most Payroll systems seem to be 4 to 5 years only; dependence on systems can be reduced by outsourcing. 
  11. Over Purchase and Under Use - as is the case with most IT systems, over 70% of functionalities remain unused; outsourcing is about precise choices; you only pay for what you use, when you use.
  12. Sensitivity - payroll is discussed at boardroom level only when it has caused a calamity – never mentioned otherwise because it is not a KPI-able function. 

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