The pace at which outsourcing is being recognised as a sound strategic and financial practice is strengthening every month and its benefits are even more evident during these times of economic uncertainty.
Tighter economic conditions prompt many business owners to look for ways to cut costs and outsourcing is an effective way to achieve the efficiencies they need just to keep afloat.
Businesses can save money by finding a cost-efficient external supplier, freeing up their own time to focus on their core competencies. By outsourcing, companies are able to tap into a wealth of expertise and resource. These are resources that the average company does not boast.
Payroll is one of the most established outsourcing services, and for good reason. With overtime payments, bonuses, tax calculations, national insurance contributions and the hassle of correcting errors, not to mention the penalties from the HMRC for getting it wrong, it's an administrative hassle that many people are more than happy to outsource.
Most customers opt for a traditional bureau approach where data is sent to the provider, which in turn processes the payroll for customer sign-off; with reports delivered electronically via a secure portal. Others opt for a fully managed service where the provider IS the customer's payroll department and handles every aspect of the entire process.
With the advancements in technology and the internet, many providers have begun to offer online processing of payroll. Major improvements in web-based technology mean that data can be easily collected from multiple sites in a fraction of the time needed for more traditional methods such as the post or fax.
Web-based self-service modules allow managers and employees to update employee records from any web-enabled device from anywhere with complete security. Even better, complete HR solutions make it possible for overtime hours and absence information to be directly fed into the payroll system. This lack of human intervention reduces the likelihood of errors and reduces time spent on keying from old-fashioned time cards.
It's likely that few business owners appreciate the hidden costs of payroll. However doing payroll in-house is both error-prone and time-consuming, often involving the input of a number of people. In less favourable economic conditions such cost and time savings can grow in significance.
Outsourcing the payroll means that senior management teams can expand or reduce the size of the workforce as needed and the overhead of processing the payroll can increase and decrease with it. Yes, there are some minimum charges, but no longer is it necessary to continue to pay a full-time payroll operative to do less than a full-time job. Budgeting for payroll is easier than many expect because providers usually charge a set amount per payslip, allowing employers to calculate exactly what outsourcing their payroll will cost.
Moving payroll costs from a ‘fixed' cost environment to a ‘variable' one is an attractive financial proposition. In most instances it is more expensive to have an in-house operation than an outsourced one although outsourcing just to save money is not a good idea. There should be a number of other business drivers pushing forward the decisions to outsource but a by-product should be cost savings.
When the decision is made to outsource, staff should be made aware of the new arrangements and kept informed at every stage throughout the relationship.
Doing business is hard enough these days, without a major headache getting in the way. Whether it is your time, staff time, or a combination, chances are the hours spent on payroll could be better spent winning more business, improving customer service, fine-tuning business operations or launching a new product line.
On paper payroll should be a pretty straightforward process, but changes in working patterns, benefits, pensions, tax regimes and employment legislation are conspiring to make it more complicated. This makes payroll an ideal candidate for outsourcing.
Many people think of outsourcing as handing over control of part of their business to some external firm. However, in reality, the exact opposite is true. Outsourcing certain aspects of your business, including the payroll function, can give you more transparency and control over your business and also give your business the edge when adapting to changing market conditions.
Dave Cooper is managing director of ESOS. For more information visit www.esos.co.uk
