Complete How-to Guide to Payroll Outsourcing

Payroll calculation lies at the fundamental of every single operating business. The core responsibility of payroll calculation involves paying the company’s employees, but there are many other aspects needed to be taken into account. Very often do the employer encounter difficulties when handling payroll, and that is when payroll outsourcing steps in.

What is Payroll Outsourcing? 

Payroll outsourcing has been growing in popularity in recent years. According to Statista, in just 5 years, the number of organizations that have fully outsourced their payroll process has increased by 50%. By “fully outsource”, it means all payroll-related tasks were handed over to professionals specializing in payroll administrations.

In fact, payroll outsourcing is a common tactic for organizations to reduce hefty operating costs while streamlining HR processes and workflows. Not only does payroll outsourcing save great time and effort, but it also lowers the risk of incorrect payments or deductions, especially when there are several legal requirements such as MPF contribution.

Apart from fully outsourcing the payroll calculation matters, businesses can also consider partially outsourcing the jobs to HR solutions providers. For instance, a company can choose to record the attendance on its own, but outsourcing the payroll calculation and review part to a third-party.

Problems with In-house Payroll 

1. Time consuming

Hiring an in-house team to handle payroll calculation is a usual practice for the majority of companies. However, as the company continues to expand, the varying employment types and hiring options might increase the complexity of payroll calculation. 

There are multiple wage calculation methods in accordance with different employment types, including full-time jobs, part-time jobs, temporary jobs and contracts. On top of that, each individual may receive a different amount of salary and wage, which makes the calculation even more difficult. To make sure no mistakes are made in the finalized payroll, in-house staff must devote a great amount of attention which is quite demanding.

2. Labor intensive

Some might think that payroll outsourcing will lead to additional costs. Although it sounds like a reasonable judgment, hiring an in-house specialist to take care of the payroll related tasks is actually more costly than expected. 

As revealed in a study, many organizations have underestimated the expenses of processing payroll, for instance, HR administration costs. Compared with purchasing a HR solution that can be seamlessly integrated with the payroll system, recruiting an experienced administration staff who has to spend days and weeks on such tiresome practice might create even more hidden costs that businesses should take into account.

3. Growth hindering

One of the main reasons why the company outsources a task is because that task is not their main operation that is profitable to the company. Payroll could be one of the complicated tasks that could generate less profits, but consume excessive effort from the administration staff on a daily basis. Doubtlessly, businesses want to focus on valuable tasks that directly support their growth. But parts like payroll could never be omitted. In-house payroll might dilute the resources that could have been put in more core operations.

Benefits of Payroll Outsourcing 

More companies have been outsourcing their payroll needs to professional HR solutions providers for several good reasons. 

Cost reduction & time-saving

The biggest advantages of payroll outsourcing is that it can provide companies with a complete end-to-end hassle-free service. When it comes to payroll calculation, there are many discrete variables which demand not only great effort, but also a considerable amount of time. By outsourcing this complicated yet necessary process to expertise, companies can significantly boost administration cost-effectiveness as well as accuracy.

In common cases, payroll outsourcing could help you avoid the hidden costs in administration work. The key to saving cost is to identify which part occupies the company’s resources the most, or the parts that the company might need to invest lots of time and effort. Depending on the discoveries of each company, you could communicate with your payroll outsourcing companies to customize your payroll service.

Focus on your core business

Every business has its core, so does yours. If you are an advertising agency, you should be focusing on brainstorming creatives. If you are a software service provider, you should be coaching your clients and optimizing the product’s functions. If you are a design agency, you should be constantly creating visuals tailored to different brand requirements.

Through outsourcing payroll to a third party, your employees could focus more on the tasks that can bring added value to your businesses. Besides, companies can save resources on training the newly recruited members since the solution providers will take care of all the details.

Risk mitigation

As payroll calculation involves personal data processing, a responsible company should handle this data and comply with labor laws and regulations to avoid breach. By outsourcing the handling of tasks to expertises, businesses shift the risk to third parties. 

Even though the companies still have to stay alert, the service providers are usually more careful in order to ensure their reputation within the industry. In other words, partnering with a credible organization can help to reduce the potential risks during payroll outsourcing.

On-demand talents

Since the payroll outsourcing service providers have rich experience in the focused field, their daily operations are more specialized than usual companies. Moreover, the HR solution providers can often get the first-handed information on the latest industry news, such as changing laws and regulations, new payroll technology and tools and more. Thus, they could offer more professional advice and services to clients of different business sizes and industries, allowing the companies to outsource the task with no worry. 

New technology integration

Technological advancements have made payroll processing more straightforward and integrated than ever. Unlike the olden days when calculation can only be done with paperwork tools, modern businesses can move the records from papers to online tools at ease. Many new HR technologies such as automated attendance recording can help to enhance the efficiency, so if you are unfamiliar with the latest advancement in such aspects, it is highly recommended to employ a payroll outsourcing service provider.

How Payroll Outsourcing Works?

Basically, payroll outsourcing involves 3 main parts, which are (1) Payroll Calculation, (2) MPF & Tax Return and (3) E-leave System and Cloud Portal Management.

Payroll Calculation

Payroll calculation lies at the core of payroll outsourcing. To make sure the payroll system aligns with the company policies and HR structuring needs, the HR solution provider will begin with helping clients to set up accounts for each employee so as to streamline future record taking. Other than the fundamental payroll calculation including monthly payroll and staff expense reimbursement, companies can also receive regular payroll reports to keep track of the status. Nonetheless, pay slip distribution and bank autopay integration could also be done according to client’s requirements.

MPF & tax return

According to the Hong Kong Government, MPF and TAX are the must-have deductions in payroll calculation, if overlooked, companies might face fines or prison time. Payroll outsourcing service providers will therefore include these 2 major components in their packages, including MPF enrollment for new employees, MPF advisory service and net pay calculation. Statement preparation plus MPF and Tax returns submission are also available upon request.

E-Leave & Cloud Portal

Integrating with new technology like cloud computing, payroll outsourcing services could provide 24/7 data access and document backup services. Additionally, e-leave systems will be implemented so employees can apply for leave directly through an online platform. With professional management skills, the payroll outsourcing service providers can handle the payslip storage and distribution smoothly and effectively.

How Much Does Payroll Outsourcing Cost?

The costs of payroll outsourcing services vary from providers to providers.

Normally speaking, there are 4 major types of pricing models:

Flat Rate Pricing

Flat rate pricing is a subscription model that charges users a flat fee per month or year for all features and all levels of access.

Usage-based Pricing

Usage-based pricing is a consumption-based pricing model in which customers are only charged when they use a product or service.

Tiered Pricing

Tiered pricing is adopted when the HR solution providers offer services at different price points by limiting or expanding the features corresponding to each tier price.

Per User Pricing

Per user pricing is the model that charges a subscriber for each user of its service. Sometimes, the payroll system may count each employee as one user, meaning that the final charges might increase as the company size expands.

Not sure which pricing model suits your business the best? Contact us to get a quote now!

How to Choose Payroll Outsourcing Service Provider? 

To make the right choice, you should be aware of the service types and pricing models of every HR solution provider.

There are different types of payroll outsourcing services in the market. When you are considering which service provider to use, make sure they provide the exact services your business needs. It would be even better if you could select your combination of services instead of pre-setting bundle services as they better fulfill your needs with an optimal budget.

Is the provider trustworthy?

Take a closer look at the historical projects that the service providers have done before. You can gain valuable insights into the quality of the projects as well as the client’s industry or scales they are usually in touch with. Try to find HR solutions providers that have partnered with some companies’ cases that are similar to yours. In such a case, you can better estimate whether the provider is experienced enough to offer you the most suitable service and advice. 

Is the HR solution up-to-date?

It is important to be sure business sensitive data is stored and processed under secured situations. As today’s cyberattacks are growing in frequency, severity and complexity, never choose a payroll system with outdated security measurements. Learn more about the technology they are using to estimate their processing efficiency and level of security before making a purchase decision.

How is the customer service availability?

Occasionally, you might encounter some payroll issues, it is therefore crucial to have a specialist assist you when the problem arises. Check on the providers’ customer support timeliness and see how quick they can respond to your inquiries in advance. Feel free to ask some questions and observe their performance to know more about their customer service availability.

NewPages – Your Customizable Payroll Outsourcing Expert 

While payroll outsourcing can be advantageous to businesses that value time over money, some downsides can materialize if the payroll system doesn’t work well with the payroll legislation and company’s policies.

Looking forward to revamping your entire payroll process quickly and simply? Talk to our HR consultant and work out the best-customized payroll outsourcing combination together!