One of the top reasons companies choose to outsource their payroll responsibilities is to save on cost. According to Deloitte, 70% of businesses outsource to reduce their expenses.
But how cost-effective is payroll outsourcing? A general rule of thumb is that when a company exceeds about 200 employees, the cost per staff member to run payroll in-house is equal to the cost of outsourcing the task.
While that calculation isn’t hard and fast (some companies will reach that cost equilibrium earlier), it offers a good starting point for deciding when outsourcing makes better financial sense. And there are many reasons why outsourcing is often the cheaper option.
Saving time and resources
Outsourced payroll solutions provide increased accuracy when compared to in-house payroll management because it gets prepared, analysed and evaluated by qualified professionals. This frees up both time and resources, allowing businesses to focus on core tasks.
For example, not only do payroll advisors charge a salary, the software they use is often expensive to set up, constantly requiring updates and the renewal of costly licences. This means your IT team will be diverted to fixing payroll glitches, managing outages, and deploying patches and upgrades rather than working on more productive tasks.
Outsourcing payroll will almost certainly cost your company less than building your own dedicated in-house human resources and finance team to handle payroll, employee onboarding, compliance documentation and everything else.
Remember, each new full-time employee you hire will come with new taxes and contributions that you must cover as the employer.
The hidden costs of payroll
Once you add up what your people could do with the time they spend on payroll — a necessary but non-productive business function — you will get a sense of what economists call ‘opportunity cost’.
On top of this, think how much time your managers spend reviewing and correcting payroll instead of creating growth.
Another hidden cost is the impact of failing to comply with regulations. Making mistakes in payroll compliance can be like a sleeping volcano. Unfortunately, mistakes are made all the time. Indeed, data from the Australian Payroll Association (APA) showed 33% of organisations admit to making at least one mistake in every single monthly pay run and 21% do so in every quarter.
Missing an employee’s deductions could cost them hundreds in fees. Messing up tax withholdings could result in your company paying thousands in penalties and interest. Misclassifying an employee can be a costly error.
These kinds of mistakes can be mitigated by outsourcing payroll to a team that eats, sleeps and breathes payroll.
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.