Outsourcing Payroll System or not ?

Many Companies specially the startups , small scale companies or the companies expanding and restructuring business often spend lot of time thinking of Outsourcing whole payroll to an external Organization is a good idea or not.

Here are few pointers you might want to consider before you make a decision.

       Out souring Payroll system can have its own advantages and disadvantages.

If outsourced, the company can benefit from the expertise of another organization in this domain and minimize errors in payroll and its related activities.

It also benefits for the activities related to legal compliance where the external organization takes cares of all returns/ challans in timely manner.

It may also benefit in terms of year end taxation, collecting of exemption documents and internal payroll audits.

The company can save on hiring dedicated HR Payroll team (team size depending on number of total employees in the company) just to run payroll and related compliance functions every month.

It will also save on cost of buying and maintaining an HRMS Payroll system.

Considering payroll as a time consuming process, if outsourced it will give opportunity and time to HR, to focus on other important people related activities such as Employee Engagement programs , Trainings, Benefit Plans or other business value addition.

But if outsourced, it may also eventually have the company to pay more to the outsourced company. This usually happens when the number of employees increases over the period of time.

Outsourcing creates dependency on the external organization; be it getting historical payroll data of employees for making business decisions or at the time of financial audits, it requires coordination and some calls to get the data.

There are chances of incorrect salary calculation or wrong taxes been applied - taxes depends on type of company’s business, its location and many other factors which the outsourced company may not consider, resulting in investing time on coordination and recalculating the whole payroll. It may also mean spending equal amount of time in coordinating as doing it in house.

Outsourcing will also mean sharing company employee’s salaries and critical information with external Organization, which irrespective of having agreement signed can be misused.