If anyone says that running a business is easy, then he’s not telling the whole truth. To tell you, it’s supposed to be hard, especially for startup entrepreneurs who usually have a hands-on approach to almost all aspects of business – operations management, sales and marketing, accounting, human resources, and even payroll.
Payroll processing, for instance, may already demand a lot of time and pose a significant burden, especially if handled manually. It requires great precision to ensure that employees are paid accurately and on time, and that the business remains compliant with all government regulations. Paying inaccurately or late can damage staff morale and productivity. Similarly, non-compliance with tax and labor laws and regulations can lead to serious penalties.
While manual payroll processing may be adequate for small businesses that employ three or five people and may be accomplished by one person or the business owner himself, more employees may require a dedicated staff, a full-force HR team, or in-house payroll software. Apart from these, however, there is another option that is equally worth considering — outsourcing payroll to a reliable service provider.
Payroll
Payroll is an encompassing term that describes various aspects related to the process of compensating company employees for their work within a particular period.
It may pertain to (a) the business or department (i.e., Payroll Department) charged with processing and managing payroll, (b) the actual process during which employee wages and salaries are calculated and paid, (c) the list of company employees and the wages and salaries payable to each of them, and (d) the total amount of wages and salaries paid to a company employee.
Importance of Payroll
Payroll is crucial for companies and businesses that employ people, as it has a direct impact on:
Company Reputation
If a company fails to manage payroll processes properly and accurately, there is a risk of a bad reputation which may discourage competitive employees from joining the company or may affect its record with the local labor and tax authorities.
Legal Compliance
Payroll processing entails compliance with labor, tax, and other related laws and regulations. Non-compliance or violation of these will definitely result in fines, penalties, and even business closure.
Talent Retention and Employee Turnover
While all employees are economic beings, paying them properly and on time keeps them satisfied and thus, increases their loyalty, productivity, and retention.
Company’s Financial Integrity
A well-managed payroll reflects a clean, transparent, and accountable financial system within the company, and the opposite may lead to employees having doubts about its financial integrity.
Employee Engagement, Morale, and Productivity
Efficient and accurate payroll leads to employee satisfaction and motivates people to work productively, especially if there is also a good benefits program.
Payroll Methods
Payroll processing may be done manually or electronically with a payroll software. It may also be outsourced to a reliable payroll service provider.
Manual Payroll
This method involves making manual entries in traditional and physical payroll ledgers, spreadsheets, and a calculator, as opposed to sophisticated and complex computerized systems. Usually employed by small companies with employees paid on a daily or weekly basis, this is time-consuming, tedious, and error-prone.
Automated Payroll
This uses computer-based software that automates the payroll routine which normally involves calculating employee pay based on work reporting, rates, and deductions. This streamlines the process, saves time, and reduces error. However, an automated payroll system or software still cannot do everything, and its efficiency and accuracy still depend on the person using it.
Outsourced Payroll
This is the practice of hiring an external organization or payroll firm to handle either part or the entire payroll operations of a company. A typical outsourced payroll service package includes calculating wages and salary, deducting and remitting taxes and social security contributions, generating payslips, and ensuring timely disbursements.
Limitations of Payroll Software
Notwithstanding the many benefits of using payroll software, which we don’t have to discuss anymore, still there are disadvantages and limitations that provide justifications for rather outsourcing payroll.
Initial Setup Demands and Learning Curve
Payroll software is not an ordinary computer program that requires basic account enrollment and encoding of data. It rather demands dedicated time and effort to learn and master its features and functionalities. Equally, changes in tax and other related laws and regulations may result in a major disruption to the usual payroll routines using the software.
Security Risks
Payroll software providers also rely on other third parties for processing and storing large amounts of information. Sensitive information, therefore, cannot be contained within the walls of the workplace or exclusively between the company and the provider. At the same time, there is also a risk of losing data, so backups become paramount.
Potential Extra Costs
Companies often think that purchasing a payroll software license is cheaper than payroll outsourcing. What they may not know is that features also vary across available plans and packages. Without scrutiny, a company may overspend on features that may not really be that necessary. Additionally, there may be additional costs for support, maintenance, and upgrades.
Compliance Discrepancies and Errors
One of the biggest drawbacks of using payroll software is its conflict with government systems and platforms. Data sets generated from these software always result in discrepancies with the data expected, especially with the frequently changing rules and regulations of government agencies. As a result, there is really a need for an expert payroll personnel who can manage the system, from encoding data to generating compliance files.
Limited Customization
A payroll software may have features and functionalities tailored for general payroll processes and may not easily be modified based on specific needs. With this, it may still require additional workarounds or manual computations, thus making the process even more complicated and time-consuming.
System Downtimes and Other Technical Issues
Like any other software, payroll software is also susceptible to bugs, system incompatibilities, downtimes, and other technical issues that may take time to resolve or require assistance from technical experts. These may cause disruptions in operations, delays in the crediting of employee salaries, or failure to make on-time filings and compliances with the tax and other government agencies.
Payroll Staff Needs
Depending on the size of the payroll or the company, hiring a payroll staff may still be necessary, which means there may still be a need to pay wages and salaries on top of the high upfront and maintenance costs of a payroll software. The staff may also need training on the use of the software.
Lack of Human Touch
Automated payroll systems reduce the necessity for personal assistance or human interaction. In the light of technological innovations, still there are many employees who prefer individual attention for payroll-related questions and concerns, and the ‘system-generated’ explanations by HR personnel, who may not have an idea about the underlying reasons or payroll principles, may just result in employee dissatisfaction and frustration.
Benefits of Outsourcing Payroll
A payroll outsourcing service is a type of back-office solution that assists businesses in the management of their employee payments. It also involves filing taxes, adhering to regulations, protecting data, and processing employee benefit claims.
The company and employee data necessary for the processing of payroll may simply be sent to the firm, and depending on the inclusions in the service package, other services such as crediting of the salaries to the employees’ bank accounts and payment of tax and statutory contributions may also be outsourced. The following are the advantages of outsourcing payroll:
Cost and Time Savings
Especially for small and medium enterprises, outsourcing payroll reduces the operational cost as there will be no additional in-house payroll staff to pay nor payroll software to purchase and maintain. Compared to the costs of fines and penalties that may result from mistakes and failures to file within deadlines, outsourcing payroll may actually result in big savings.
Increased Efficiency
Payroll outsourcing translates to efficiently utilizing time and resources. By entrusting payroll routines to a specialized provider or firm, the company can free up the HR staff to focus on core tasks, such as employee management, training and development, and performance appraisals, among others.
Expert and Professional Payroll Team
Outsourcing payroll ensures that all tasks are handled by an expert team who knows payroll inside and out, from the calculation of salaries and deductions to compliance with the latest tax and other related laws and regulations. Errors and miscalculations are mitigated under the accountabilities of the team.
Tax and Statutory Compliances
Processing payroll also comes with compliances with the Bureau of Internal Revenue (BIR) for tax deductions and remittances and other statutory government agencies (i.e., SSS, PhilHealth, and Pag-IBIG Fund) for the mandated social security contributions. If payroll is outsourced, there is no need to problematize deadlines, filings, and processing of benefit claims, as they may also be processed by the payroll team.
Enhanced Data Security
Outsourcing payroll comes with contracts and agreements, which normally involve the terms and conditions governing the company’s data, e.g., shared only between the two parties. Equally, there is no need for the company to invest in costly computer security, as this is often covered by the payroll firm.
Scalability
While the company may experience fluctuations in finances and manpower, outsourced payroll services may easily be adapted to meet the changing needs. In other words, there is no need to downsize the HR team, let go of the payroll software when the company experiences major losses, or rehire people after bouncing back to profitability.
Employee Satisfaction
Delays and errors in payroll negatively affect employer-employee relations. With a reliable and efficient payroll firm to which the company payroll is outsourced, however, timely and accurate payments will boost employee morale and result in their satisfaction. Satisfied employees are motivated to perform their jobs even better and maximize productivity.
Human Touch and Real Interaction
While the payroll may be outsourced to another firm, the latter may integrate personalized employee support, through the employer, and allow open communications for payroll-related concerns, benefit claims, and other related services. The payroll service provider, being experienced and expert, can explain in detail the hows and whys of the payroll should the employees need so.
Focus on Core Business Activities
By having all payroll-related tasks outsourced, the company can afford the luxury of allocating its resources and precious time to its core business initiatives, e.g., focusing on strategies for driving the company into growth and profitability.
In conclusion, outsourcing payroll to a reliable service provider offers significant advantages over purchasing and maintaining costly in-house payroll software. Not only can companies reduce operational complexities and mitigate risks associated with regulatory compliances, they can also leverage the expertise of the specialized professionals, personalized approach, and dedicated client support. In the end, they can have more dedicated time and human resources to focus on core business functions and drive the business into profitability and sustainability.
… and you might just need our assistance.
Outsource your payroll needs instead of purchasing costly in-house payroll software and take advantage of the service provider’s expertise, personalized approach, dedicated client support, and many other benefits. Set up a consultation with FilePino today! Call us at (02) 8478-5826 (landline) and 0917 892 2337 (mobile) or send an email to info@filepino.com.
