A desire to focus on core business activities, together with increasingly complex administrative issues, rising costs and a shortage of appropriate skills, is causing many companies to move in the direction of outsourcing their payroll function.
Marina Nolte, national outsourcing manager at Softline VIP, says the payroll outsourcing market is growing rapidly.
“We started our outsourcing business about four years ago and while we have not started marketing the business properly, we already have more than 165 clients,” Nolte says.
Companies are focusing on their core business activities and opting to shed non-core functions such as payroll. Another factor driving outsourcing is that payroll is becoming so specialised. Companies do not want to deal with the demands of keeping up with tax regulations and the latest labour legislation.
“This means that companies have to hire specialist skills for their payroll departments, or move to a skilled service provider,” Nolte says.
The cost of hiring and retaining skilled personnel is high, but the cost of an error can be even higher due to the penalties associated with compliance failure. Companies are also becoming increasingly concerned about the cost of fraud.
“Continuity is another factor. Companies need to keep their payroll information confidential and this often means having only one person with access to the information. But if that person is sick, there is no one to run the payroll function.
“Outsourced service providers have staffing redundancy. MoreÂÂover, as the function is housed externally, the risk of disclosure of confidential information is significantly reduced,” Nolte says. She says various service providers offer differing levels of service and function ranging from pay-slip processing to a comprehensive payroll operation.
David Greenleaf, commercial director at Ability Solutions, says outsourcing is becoming more attractive, particularly from a payroll point of view.
“Outsourcing helps to address the issue of confidentiality. Payroll information is very sensitive and you do not want employees knowing what everyone is earning. In addition, there are concerns about the lack of skills and the cost of retaining qualified people who know the demands of payroll and the software involved,” says Greenleaf.
Gary Epstein, MD of QuickBooks, does not see outsourcing as an appropriate solution for start-up and smaller businesses.
“Small and medium-sized businesses need to have direct control over functions such as payroll and accounting.
“Outsourcing does not take away control, but management can lose touch with an important component of the business,” Epstein says.