Payroll processing is an integral part of running every business if it has personnel. Companies can choose to manage payroll in-house (manual or via software) or outsource this process to a third-party provider. Every business is different and the decision for either approach should be evaluated carefully. In below article we analyze these options to help you with your decision.
A major disadvantage with payroll outsourcing services is that you are entitled to share confidential and sensitive information to a third-party company. This can pose various risks for your business. Manual payroll processing also increases the chance of data getting into the hands of the wrong person. In terms of information security, using cloud-based software on a leading service (like Microsoft Azure) together with high level user authentication within the application is the best option. Make sure to ask to ask the software or payroll outsourcing provider about their data security protocols
Completing payroll internally via manual methods requires dedicated payroll staff with in-depth knowledge of tax and labor regulations. It is highly prone to human error. It can create incorrect payments and issues with tax compliancy. These issues can be prevented by using sophisticated payroll software. To completely remove any compliance risk, you can shift the responsibility towards the payroll outsourcing provider.
The manual payroll system is of course the most inexpensive method. You would have to calculate the direct labor costs of administrative staff and indirect labor costs (think of non-payroll staff working on administrative tasks such as collecting or approving timesheets). The initial investment for a payroll system might look high but a comparison should be made over several years (e.g. 3 or 5). You should take in account the initial investment and yearly maintenance costs but also the time savings (thus cost) accomplished by using of such a system. Naturally with an outsourced payroll service provider the costs will be much higher.
Data access and flexibility
In-house payroll (whether manual or via software) will always give you the highest level of data access. With a cloud-based payroll solution admins and other stakeholders can have access to data from anywhere at any time. This makes it easy to make last minute adjustments when needed. This will be more difficult when dealing with a payroll outsourcing company and you have to rely on the availability and schedule of a third-party consultant.
We recommend implementing a cloud payroll software (hint ours) but we from Cadena are of course a bit biased. The decision for payroll outsourcing vs. in-house payroll (and manual vs. software) will depend on the size of your company, your access to good human resources, available budget and preferred level of control on compliance/information security.
Marc Reefman is Business Development Manager at Cadena. He leads the regional sales and marketing in Southeast Asia. He’s passionate about helping HR professionals improve the way they work and thus their companies.