Outsourcing payroll services has become very popular due to cloud computing. Many of the costs are lower, but are there any drawbacks? Discover the pros and cons of payroll outsourcing services.
Stream-Lining Small Business Payroll
Generally, large multinational corporations can afford to have numerous departments performing various functions. They have a large asset base and good credit history. This allows them to raise money quickly from banks.
Unfortunately, small businesses and startups might not enjoy the same benefits. They might have a very tight budget. When banks are reluctant to offer new small business loans, these companies might need to cutback.
How can you become more efficient?
One of the more popular methods for cutting your costs is to outsource your services to the cloud. Some of the most powerful global Internet brands offer cloud services. There are numerous benefits to payroll outsourcing, but you need to do your research.
We will be honest and forthright about some of the disadvantages of outsourcing the payroll for small businesses. Our goal in this Payroll Outsourcing Guide is to provide you with objective facts. Then, you can make the best decision about your payroll.
Why Businesses Outsource Services?
Small businesses might consider outsourcing their payroll to cut costs. It might make the best sense for startups with limited budgets. Outsourcing allows them to spend their money on activities that are most useful for growing their businesses.
There is nothing really dramatic, glitzy or exciting about payroll. For many employees, they are simply happy when receiving their checks on time. Here are some of the primary reasons for outsourcing payroll services:
- Save Time
- Add or Remove Services
- Cutting Edge Software Technology
- Latest Human Resources Trends
- Taxes & Compliance
Due to these over-lapping advantages, outsourcing might allow you to increase the number of payroll features, while reducing your overall costs.
1. Save Time
Every business has certain back office tasks that might not increase the profitability of the firm. The payroll for small businesses is a necessity, but not necessarily key to the growth of a startup. By outsourcing payroll, your executives can better focus on your core competency – become leaner, meaner and more efficient.
Cloud computing services have a number of key advantages, including economies of scale. Fixed data centre overhead costs are spread out amongst many different customers. This fact allows outsourcing companies to enjoy an overall lower cost for each service.
Furthermore, it can be expensive to fully man a Human Resources Department. The cost-effective nature of outsourcing makes a lot of sense for small companies. Moreover, many data centre workers receive lower wages because they don’t earn full-time benefits.
3. Add or Remove Features
Some large corporations accumulate a large workforce with many outdated skill sets. It can be very difficult to justify down-sizing when you know that some employees will be laid off. At a large data center, those employees can be re-assigned more easily.
It is easy to add or remove features as you need them with service contracts. Outsourcing contracts offer a lot of flexibility. These allow you to target very specific goals for your business.
Startups can enjoy scalability by outsourcing their less profitable back office functionality. Payroll for small businesses can grow as your firm grows. You only need to pay for what you need.
4. Cutting Edge Features
Another key benefit of cloud computing data centers is that they can offer you cutting-edge software as a service (SasS) and well-trained employees. The companies need to offer the best technology to stay competitive. This also includes having well-trained Human Resources staff.
The employees can stay on top of the latest payroll trends. The staff can share tips and tricks of the trade with one another. Large cloud computing systems can engage in 24/7/365 training.
Payroll taxes and government compliance is easier with a large network of employees. They can have specialized staff members who understand the tax code, inside and out. Every year, they can read up on any tax changes, train the entire group and help your business remain in compliance.
Hidden Costs of Outsourcing
So, with all of these tremendous advantages, why wouldn’t everyone want to outsource their payroll? The truth is that many of the advantages are apparent, while the disadvantages are somewhat hidden. These are some of the most common problems that can arise with outsourced payroll services:
- Lost Control
- Data Integrity
- Data Access
- Going Out of Business
There is an element of giving up full control over some very confidential personal and financial information with small business outsourcing of payroll functions.
1. Loss of Control
You really need to be sure that you can trust the payroll firm that you are using. You are giving them access to your employee’s names, home addresses and bank account numbers. If there are any problems, then you will be liable.
The dangers of identity theft are real. You have no control over the security background checks of the employees, who have access to your corporate data. Corporate payroll data is very valuable and could be resold or fall into the wrong hands.
2. Data Integrity
If there are any problems with the data integrity, it can be very difficult to track these down. Once again, you are trusting in a third-party to maintain good records. Resolving problems might be very difficult because you might have very little control over the data integrity.
3. Data Access
In general, you would love to have 24/7/365 remote access to your data. The problem is that your company data might be merged with other companies in a large database. It might take time to sort by your company and provide you with a report.
While outsourcing saves you time initially, it can be very burdensome when problem-solving is necessary. Your employees won’t have much patience when they don’t receive their pay check on time. Another layer of bureaucracy has been added with outsourcing.
4. Going Out of Business
And, some firms go out of business. Of course, you can say that about any third-party company. But, this one has your payroll data.
Business owners, executives and employees can better focus on their core competency with outsourced services. This can save the small business valuable time, updating, maintaining and organizing databases. Plus, the firm doesn’t need to train any new Human Resources Staff.
With a leaner, meaner organizational structure, you might be able to lower the price of your products or services. As you grow, you can add or remove services to provide scalability. Some of the technology and skill sets are cutting-edge at outsourcing firms.
Cloud companies will be on top of the latest Human Resources trends, including taxes and compliance. All in all, you can focus more on growing your front-office business by outsourcing your back-office payroll.
You lose control of very valuable personal and financial information with outsourcing your payroll. The chances of identity theft are heightened. When you write the service contract, you need to make sure you have full, anytime, remote access to your data.
And, companies go out of business, all the time. You might want to have a monthly backup copy of your payroll sent to your office to protect you against any business failures.
Outsourcing can be very beneficial, but there is heightened risk. You need to carefully weigh the pros and cons to determine if outsourcing payroll is right for you.