Company culture, employee experience, morale and motivation can come crashing down with inaccurate payrolls and, worse, without a proper payroll process in place.
Let’s be real. An accurate paycheck that always arrives on time is still the most significant motivating factor for employees. In fact, the Workforce Institute found that only two payroll errors are enough to make employees reconsider their tenure at their company.
According to a survey conducted by SD Worx in 2017, 44% of all respondents said that they’d consider leaving the organization after experiencing a payroll error.
And this number is only growing larger with the rise of the gig economy and better remote opportunities. So this is an area you can’t afford to ignore and it’s essential to know the best way to handle payroll.
And if you’re a small- or medium-sized business, it’s all the more important: Hiring is costly, and low motivation impacts productivity negatively.
Among the easiest ways to counter this particular issue is to outsource payroll to dedicated payroll service providers.
What’s a payroll service provider?
A payroll service provider is an outsourced entity that steps in to take the reins of your organization’s payroll, either fully or in parts. Payroll processing services are most helpful for businesses that may not have the knowledge or resources to run payroll themselves.
Payroll services help companies process payroll in a timely and accurate manner. They also ensure compliance with payroll and labor laws and statutory reporting obligations.
Let’s take a look at some key responsibilities that are common to all payroll service providers:
1. Automatic payroll processing
The bread and butter of a payroll service provider is to make sure that everybody gets their money on time!
But that’s not all. Automating the process with little room for critical human intervention is the actual art here. Automating payroll is estimated to reduce payroll costs by up to 80%, and most payroll service providers offer largely automated payroll processes.
2. Compliance expertise
Global teams are common now, but that doesn’t make them any less complicated.
In 2019 alone, the IRS levied $13.7 billion in payroll tax-related penalties. Labor and tax laws remain stringent, and proper compliance is key to sustaining a functioning global workforce.
3. Reporting and transparency
You don’t want to be kept in the dark about the payroll decisions that your service provider makes on your behalf. Real-time, accessible, and accurate reporting is non-negotiable.
4. Portals for employees
Employees expect to be able to interact with their pay stubs, understand their pay breakups, and edit personal data if and when needed. So, a self-service portal is essential.
Nearly 80% of the employees who face payroll discrepancies have to find out about these on their own. So you’ll need a portal for them to express grievances directly to the team responsible for disbursing their paycheck.
5. Headcount management and reporting
Businesses are obligated by federal law to report new hires and attrition. Every new hire and re-hire must be reported within 20 days of their hiring date. This is mandated by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), and a failure can result in fines worth $25 for a mistake and $500 for conspiring with an employee.
Your service provider should be capable of complying with such mandates and be extra careful not to inadvertently violate any of them.
6. Withholding taxes and garnishing wages
Paying employees is only half of what payroll involves. Payroll service providers also need to withhold the right taxes and handle all applicable garnishments and any other deductions.
7. Accessible support
An account manager being on vacation shouldn’t mean there’s no one to answer your payroll queries. A good payroll service provider must be always available to clarify queries, both from the business and employee side of things.
Who should outsource their payroll?
Are payroll services meant only for those companies that have a relatively small headcount?
Not really! 61% of companies outsource parts or all of their payroll process.
More than headcount or the maturity of a company, it’s the need that defines whether a company should partner up with a payroll service provider.
1. Medium-sized businesses and enterprises
Scale is one of the main factors that decide if you need to outsource your payroll. Smaller companies may prefer managing their own payroll to keep overheads from spiraling out of control. However, any business with a headcount of 20 or more will need help.
2. Companies that need to focus more on their core business
While payroll is crucial, it’s not the core of your business. So, you shouldn’t invest a lot of time and effort into it. Of the 61% of companies that outsource payroll operations, 57% claim that they now find it easier to focus on their core business.
3. Companies operating globally
When your company works with a global workforce, you’re bound to deal with different legal and compliance requirements. Hiring experts for each of your territories could be a task on its own.
That’s where a payroll service provider can help, with their expertise in local compliance and ensuring paychecks are released on time and in the local currency.
4. Companies with a hybrid workforce or several gig-workers
With the gig economy more popular than ever, companies are experimenting with consultants, freelancers, contract employees, full-time employees, and more modes of working.
All these workforce groups may have different payout cycles, mandates, and compliances. So it’s better to rope in a payroll service provider that can help you handle payroll with ease.
Benefits of outsourced payroll services
Unless the core competency of your business revolves around human resource management and payroll, they can quickly become your most obvious cost centers.
A PwC report states that companies that outsource payroll save 18% on average. But a payroll service provider does a lot more than just cut costs for your business.
Global businesses and the gig economy mean you’ll have to deal with a whole new set of contracts, compliances, and complications. As payroll grows beyond attendance, timesheets, severances, and payslips, outsourcing your process to specialists will generally help you scale faster.
Selecting the right payroll service provider
Making your outsourcing decision is just the start. You still have to find the right payroll service provider. To make that choice, you need to first ask some simple questions.
1. What are your requirements?
How many employees do you have? How frequent is your pay cycle? What scale are you operating at? How many countries is your workforce spread across?
The answers to these questions will influence your choice of the right payroll service provider.
2. Are the processes automated?
There’s no point in hiring a payroll service provider if your in-house HR team has to constantly chase them for reports, documents, and other details. Choose a provider with an automated, real-time portal that can answer and accommodate your team’s queries.
3. Do they know their stuff?
There’s no way to sugarcoat this: An inefficient payroll service provider can make life miserable for you, your HR team, and — most of all — your employees. Before making a concrete decision, make sure that you have a clear idea about all the services that they offer, their team, and their skill-sets.
4. What’s your budget?
While this should not be the factor influencing your decision, make sure you’re not being overcharged. Go for a provider with a transparent pricing model. Talk about payment structures and review the finer details of the contract and terms of payment.
5. How fast are you looking to scale?
If you foresee a scaling phase for your business, make sure that the payroll service provider has the bandwidth to support it. As you scale, make sure that the contract and the terms of payment get updated fairly.
Conversely, if you anticipate scaling down operations, make sure that the service provider is accommodating of it.
6. What about data or insights?
Providing you with accurate data is a bare essential. The numbers have to be democratic, accessible, and accurate at all times. However, a little insight could go a long way. True subject matter experts can help you understand patterns in payroll data, optimize costs, and give you real, timely insights in place of vague numbers and huge data sets.
7. Are your employees comfortable?
The payroll is closer to employees than it is to employers. So, make sure that your employees don’t face any inconveniences.
Provide a portal where they can monitor pay stubs, raise grievances, get clarifications, and more. Their attendance and absenteeism should be automatically mapped to their payrolls, with no manual intervention. Likewise, promotions, pay hikes, bonuses, and other rewards should reach them with no scope for confusion.
Things that should make or break your deal
Some features are nice to have, while others are a must. Here are three things a payroll service provider must have for you to choose them.
Transparency
All payments, policies, and charges must be transparently provided for in the contract. Any hidden costs, ambiguous overheads, and unpredictable invoices are a big red flag. Negotiate costs clearly. If your service provider isn’t ready to transparently account for every penny, they aren’t the right choice.
Data protection
This is even more crucial than money! You are entrusting the service provider with all PII and financial information about your entire workforce. So they must have strict privacy policies and strong data protection frameworks. They must have breach protocols and document their data framework earnestly.
Ownership
Finally, who’s responsible for a payroll error? What if it escalates and there’s a fine levied? Who will pay for it?
Responsible payroll service providers take complete ownership of payroll and make sure to mitigate risks. In case of errors, they need to own up to it, rectify it, submit an RCA, and make sure it never happens again.
Ensuring a smooth transition
Here are a few things to keep in mind when you begin your partnership with a payroll service provider:
Document your payroll process
Understand your existing process end to end and document it extensively. This will help you and the service provider to transition smoothly by continuing with the compliances, accounting for all full-time and temporary workforce, and not missing overtime rules.
Aim for optimization
One in three employers make payroll mistakes, which result in penalties. While there are many reasons for this, the most common are process bottlenecks or an unoptimized payroll. It is important to conduct RCAs for past mistakes or at least help the service provider do it.
Hopefully, they won’t repeat the same mistake you did.
Encourage collaboration
An outsourced payroll service provider can really help if your internal HR and Finance teams are already stretched. Make sure your internal teams and the service provider work closely, at least during the setup and deployment phase. It becomes so much easier with a healthy exchange of know-how, roadmaps, and strategy.
Communicate the change to your employees
Your employees should be the first to know about the transition, and it is best that they hear it from you. Make sure that you keep them in the know, explain what the transition will mean for them, and set up a process to provide clarifications and answer queries if needed.
Multiplier makes it easy
With a new payroll service provider, your employees will have to get used to several new processes. You can alleviate their burden with an all-inclusive platform that brings together all aspects of the payroll process in one place.
Check out Multiplier’s services today or talk with experts to understand how Multiplier makes payroll easy!
