Most people know the saying “A jack-of-all-trades is master of none”. But what few know is that the quote ends with “but is still better than a master of one”. In many ways, it sums up the problem with modern payroll, which has become too big and too complex for even small teams to manage, never mind one person.
The attraction of outsourcing payroll means putting it into the hands of a larger team with a level of expertise, experience and resources that can only be earned from living and breathing payroll every single day.
Finding a payroll provider that’s right for you — one that solves your problems rather than just acting as another set of hands and feet — is the daunting bit.
What do managed payroll providers do?
Payroll providers do everything from calculating pay and deductions to transferring money into an employee’s account. They even help file taxes. They can do all of this — and more — or they might just do part of the payroll job, depending on what a company needs and what it can afford.
But before making the decision to switch to managed payroll, there are a few things to consider.
1. Payroll expertise
Payroll administration has become remarkably complex over the past few decades and technology has only partially offset the extra work.
While payroll skills can be taught, the expertise needed to assure quality, perform great customer service, configure software systems, navigate government regulations (and compliance) and a host of other tasks, is best put in the hands of a team to whom it’s familiar territory.
A competent payroll provider will offer an entire ecosystem that understands payroll, the nuances of compliance, business structures, workforce agreements and everything in between. Rather than asking an in-house payroll team to re-engineer how they operate (they may not even know where to start with this) the provider’s software systems will support the entire role right out of the gate.
Don’t just shift the problem
You don’t need another set of hands — in effect a body shop. What you need is a set of specialists who can analyse, identify and solve root problems. Simply shifting responsibility to another team is passing the buck. You need problem solvers.
One way to tell the difference between real specialists and just another ‘body shop’ rests with the ownership of the software systems they use. Ask your prospective provider whether it owns the software that you will be subscribing to or licensing. If the provider is the equivalent of a body shop, then it might have all the right expertise and people, but it won’t own the technology or the intellectual property.
Body shops struggle to provide a tailored solution to a company’s problems, leaving the customer not much better off than buying an off-the-shelf package.
2. Change management
Outsourcing doesn’t work when a company shifts its payroll inefficiencies and problems to someone else, a practise called ‘lift and shift’.
A good transformation process requires the customer and the provider to create a partnership, rather than just supplying and buying a service. This more holistic view of a payroll service allows a provider to evolve with a company as it grows and changes.
Since transformation is the key to a good outsourcing experience, it’s important to look for a payroll partner who can manage serious change in a company. The point of outsourcing payroll is that critical problems in how the role is performed can be fixed and stay fixed.
Payroll engineers are more than payroll managers. They can configure software to a customer’s needs. But this requires a customer accepting that things will change under the new outsourcing protocols.
The first step for any payroll provider is to analyse all the payroll processes of a company. This will help them engineer new processes and tools that follow best practice. This re-engineering exercise removes as much risk and extra work as possible to maximise the efficiency of the customer’s business while integrating the solution into how it operates.
3. Identifying weaknesses
As the great business leader Peter Drucker once said, what can’t be measured cannot be managed. Before approaching an external payroll provider, it will be useful for you to pinpoint where you believe are the problems and frictions in the way your organisation performs payroll.
Normally, a company hoping to switch to outsourcing has a problem they want to solve regarding resourcing or performance. If you are growing fast, you will also likely want extra help to get to the next level.
Other reasons for outsourcing might include merging teams, adopting different business systems, adding new software or even dealing with the demands of seasonal workforces.
It might be tough to locate all the specific problems you need to solve, but any information you can provide will help your payroll partner tailor their solution to your business.
Consider the following basic queries as a jumping-off exercise to uncover key issues:
- How does your payroll supplier stay up to date and compliant?
- How does the payroll provider presently ensure accuracy and timeliness of payroll?
- Are there any customers of the provider that might offer useful insights into preparing for the transition?
- Is your company suffering from under or overpayments?
- How can your company reduce risk and increase efficiency?
- Will outsourcing your payroll reduce your costs, compared with retaining an in-house team?
3. Cost savings
A common motivation for outsourcing payroll is that the costs of keeping it in-house are too high, or likely to grow.
By running the numbers to compare the cost of performing payroll in-house with outsourcing to a managed payroll provider, it will become clear that a good amount of money can be saved.
Do the maths
Find out how many hours your employees or contractors are spending on payroll-related activities such as calculations, using computer software, training, keeping up with legislative changes, managing new hires and reporting. By comparing these costs to the plans offered by payroll providers, it should be a no-brainer to make the switch.
Cost reduction is certainly achievable with outsourcing. In fact, it is rare that the overall cost of payroll increases when shifting to a third party. If it does, ask why. If the provider is doing their job correctly with a larger team, they should be able to do it much more cheaply than an in-house team.
It’s not always about the money
Sometimes cost savings aren’t as important as being in control of payroll data and information. The two most common fears among companies pondering a switch to outsourcing are losing control of data and not having access to payroll accounts.
While both might be considered by some to be too risky, ensuring access to payroll systems is usually not an issue for most providers. Clients are given full access through software portals and user-friendly interfaces and can integrate directly with the data.
And when it comes to confidential payroll data, outsourcing of payroll to an experienced provider can often be safer. Along with backups and multiple server locations, the provider will likely have access to a high-quality storage system for protecting data as part of its service.
Also, the fear of loss of control is generally mitigated by service level agreements outlining that the provider is simply working with the data, and neither owns it nor will pass it on to other entities. Ensuring the provider can be contacted after hours can also put a worried customer’s mind at ease.
5. Handover processes
Real outsourcing is a partnership, not a pass-the-buck exercise, and so it’s important to make sure the handover is smooth and trouble-free.
The challenge here can be retaining current staff until the handover is completed. Business transformation can be tough on employee morale, so it’s critical that the people currently responsible for payroll are included in the handover from the outset.
Guarding against the disaster of payroll people leaving the company too early before the new system goes live is critical. If they do leave prematurely, it may still be possible to bring in contractors to ensure continuity of supply. If things get really desperate, the outsource provider itself may be able to supply resourcing early to manage the transition from inside the company.
But that’s not the only risk in a handover process.
Other common risks to mitigate include passing the provider bad or corrupted data and being unclear about expectations for an accurate payroll. Unforeseen problems during the handover are nearly impossible to plan for but getting the foundations right can go a long way in ensuring the project doesn’t spin out of control.
The provider can help discover upfront what the issues might be — in particular regarding the quality of payroll data stored by an in-house team — and request a full analysis that identifies all the problems. The customer can then find out how the provider proposes to help resolve some of the issues, such as underpayments and overpayments that may have crept into the payroll system due to complexity.
The longer you leave a problem, the worse it gets and the more expensive and riskier it is to solve. But a lift and shift of your problems to a payroll provider that is nothing more than a body shop will literally be going from the frying pan into the fire. If you want an expert, well-resourced partner with a world-class technology solution, talk to us today about the best solution for your business.
For over thirty years, Affinity has been a trusted partner for mid-market and enterprise businesses in Australia and New Zealand, empowering them to transform their payroll operations. With a focus on turning payroll from a cost into an asset, we have established ourselves as industry leaders in delivering innovative cloud-based payroll software and exceptional payroll services.