Are you considering outsourcing your payroll but unsure how you should go about doing it? Ian Sparrow explains what issues you need to consider and how the process works.
The role of HR is becoming ever-more strategic. Gone are the days when it was viewed as a back office function, responsible for hiring, firing and keeping personnel records. As organisations place increasing importance on retaining employees, developing skills, managing absence and employee engagement, they are relying on HR to implement sophisticated strategies in order to meet these key business objectives.
In addition to these challenges, the ever-increasing frequency of changes to employer legislation imposes a burden on HR professionals who are already having to spend time on administrative duties, query handling, and other time-intensive tasks such as those associated with payroll. Outsourcing payroll is one way organisations can free up some of this time.
The true value of outsourcing
The value gained from outsourcing payroll can vary enormously from organisation to organisation, as each has its own objectives, different challenges and operational issues to overcome. For example, firms with an international workforce may find it invaluable to partner with a payroll service provider that brings expertise on international tax and legislation. Other organisations may value the time savings they will gain from not having to handle employee queries, while for others security and risk may be the major benefit.
However, for many, the development of internet-based payroll service solutions offers the greatest benefit to HR and the organisation as a whole. There are many benefits, for example, the very nature of online access removes the need for local IT support, which can have cost and time saving benefits. Online systems also allow access at anytime and from anywhere, which facilitates remote access, especially useful for a mobile HR workforce or one based around multiple sites.
Today, outsourcing payroll doesn't mean that an organisation has to sacrifice its single HR and payroll information database. A modern service offers both payroll and HR functionality, enabling organisations to integrate benefits, absence and training & development information under one system.
There are a range of service options available to an organisation looking to outsource its payroll. Establishing what it needs to achieve through the outsourcing is one of the most important aspects to focus on. Organisations also need to be clear on the extent of its outsourcing requirements and areas on which it will not compromise.
Payroll processing, also known as 'bureau', allows an organisation to gain access to an outsourcer's fully maintained and statutory compliant payroll and processing resources, whilst maintaining responsibility for gathering and retaining information in house. A company may choose this option if it wants to relieve overstretched payroll resources.
A fully managed service, on the other hand, sees the outsourcer managing the end-to-end payroll process, removing the need for a dedicated payroll expert in-house and substantially reducing the administrative burden on the organisation.
In this case, the outsourcer will usually take responsibility for dealing with employee queries. This can have significant time saving implications, as these queries often take up a large amount of valuable HR time.
A company may opt for a fully managed service as an enabler to implement business strategies or to allow HR to focus more on strategic activities. It can be beneficial for companies of all sizes, whether they are looking to focus on their core activity, or want to bring in sophisticated systems without the high set up costs. Managed service payroll is also attractive to international companies that would otherwise have to worry about legislation in various jurisdictions.
On top of the two basic levels of payroll outsourcing, there are also other options to consider. Whilst traditionally, outsourcing involved physically sending data to the provider and waiting for their response with the processed payroll, many of the best solutions are now online, making the process a great deal quicker and easier.
Online payroll allows organisations to access information any time, anywhere, and also takes away the need to input data twice, which was often the case with older systems. This minimises mistakes and reduces delays in information transfer so the system is always up-to-date and reports can be run at any time during the month.
One of the benefits of modern HR and payroll solutions is their ability to provide services known as Employee Self Service (ESS) and Manager Self Service (MSS): two solutions that should be considered when looking to outsource. ESS and MSS enable employees and managers to access certain areas of the payroll system to view and update information online. The system is safe and secure as it is password protected.
Using this system, employees should be able to view their payslip information online, update personal information such as address details and have the option to get their payslip delivered electronically. This can be hugely beneficial in spreading the administrative burden across the company, improving work flow and taking further pressure off HR professionals.
Organisations choose to outsource payroll to varying degrees and in different ways depending on the needs of the organisation. As technology develops, so too does the service outsourcers offer. Online systems benefit organisations by allowing information to be updated more easily and, in so doing, freeing up HR time to concentrate on the strategic aspects of the job, which have the greatest overall impact on the organisation.
Ian Sparrow is European Projects Director at ADP.