article banner

A growing trend – outsourcing payroll accounting

Terje Liiv Terje Liiv

For many companies, payroll operations are still a field that requires much time, dedication and confidentiality as well as additional investment into technology and workforce expenses.

Internationally, outsourcing this field is becoming more usual. Grant Thornton recently conducted a survey in which 2,517 companies from 36 countries participated. It found that 25% of the companies are already outsourcing payroll services and 9% of them plan to do so in future. Latching on to this trend, one of the biggest purveyors of payroll accounting service, ADP has expanded to more than 100 countries to offer support to global enterprises that are themselves expanding to new markets.

Yet it isn’t only multinationals who are entrusting payroll to professional service providers. A key edge for those service providers is the capability to cater to both big and small. That means that the partner is capable of growing with the company and able to get on with both 10 and 100 employees on the payroll. Such a partner can help your business grow and serve as an advisor in areas where your expertise may be strained.

Entrusting payroll to a partner comes with the following benefits for companies:

  • Frees up time and resources to allow the key personnel to focus on their main activity.
  • Gives access to technology and knowledge that ensure precise and timely accounting.
  • Reduces the expenses and risks associated with payroll accounting.

Trustworthiness as an employer

Payroll accounting is more complicated than might meet the eye. In addition to monthly payouts of salary, it means accounting for bonuses and holiday pay, filing tax returns, knowledge of legislation and keeping up with technological requirements. Proper handling of confidential information is especially important. People are the greatest asset for companies and payroll accounting is one of the most important components that define the relationship between employer and employee. Timely and accurate wage accounting is elementary. At the same time, errors reduce the perceived trustworthiness of the employer. Whether stemming from human error or an imperfect knowledge of legislation, errors can prove costly for companies.

Greater confidentiality, fewer risks

Both salary negotiations and the information in employment contracts should remain known only to the employer and the specific employee. Yet it is all too frequent when confidential information leaks out, causing additional tensions and problems within a company.

By entrusting payroll accounting to an external partner, you can agree with the service provider that the provider will prepare the salary transfers in the form of consolidated payment in the bank or opt for a full service where the salaries are paid via the service provider’s bank account. By doing so, you will significantly reduce the risk that the salary information falls into the wrong hands.

Save on valuable resources

The biggest advantages of outsourcing payroll are the time and money saved. Payroll is a time-consuming job, which may take up hours of valuable time for an accountant who has to keep the company’s financial affairs functioning. Small business owners are often forced to set aside time from business development functions to do the wage accounting for their employees themselves. Although it may seem at first glance that doing the books oneself is more cost-effective than entrusting it to a professional, the reality is the opposite. In the long term, it is more profitable for a company if key persons can focus on their main activity and wage accounting is left to the care of the specialists.

For small businesses, the biggest plus in outsourcing payroll is the time saved. For large companies, outsourcing can really make a dent in workforce costs, as there is no reason to keep payroll employees on staff. Often there is only a limited amount of time for performing payroll. Service providers have the resources to involve several people on one customer’s account for short periods, without worrying about insufficient workload the rest of the month.

The current market situation makes it inevitable that payroll expenses will grow, and this has a knock-on effect on the company’s profit.

Access to technology and knowledge

Corporate payroll procedures can vary, and thus it can be arduous to bring a new employee up to speed.

If you’ve found a trustworthy, professional partner, this will give you access to knowledge otherwise lacking in a company. Payroll service providers are responsible for keeping their employees up to date with the latest changes in laws. This means that, besides the increased knowledge base, companies will be able to save on training costs. In addition, company heads need not worry that the information will leave the company if the employees quits. Professional service providers take responsibility for making sure employees have all the information they need for ensuring proper payroll accounting.

Technology is just as important to payroll as knowledge. Implementation of payroll systems may mean unplanned expenses for companies; often it isn’t clear which one to prefer. Professional service provider often use different programmes and are able to select the wage accounting program that is right for the company. Your company will gain access to the best technology without additional expenditures.