Know what is the best time to outsource the payroll function of your organization

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Payroll management is one of the biggest expenses of a company. On an average a company invests 20-30% of total revenue in managing the entire payroll. Large established firms manage this expense smoothly but managing payroll inhouse is a challenge for SMEs and other growing business set ups. Larger the company, bigger is the payroll headache. Unlike other functions of a business, payroll need expertise and accuracy.

What happens when you manage payroll in-house?

Inhouse payroll function is prone to human errors and mistakes. It is a complex process which involves employee salaries, employee MIS, hire to retire entire payroll management, documents and most importantly it involves compliances and regulations. When it is about law, you have to be proactive in Indian payroll management. When payroll is managed internally, employees manage it just like any other business function which leaves a chance of delay and mistakes.

Signs which indicates that you need to outsource your payroll function on priority

  • Employee attendance or absence tracking: If you are still tracking employees’ leaves and their vacations manually using simple sheets, then there are chances of unintended errors and misuse of the data. If this data is hampered you may end up paying for what you are not responsible.
  • Inhouse payroll team is over occupied: As your employees spend more time with you and become experienced, they tend to handle too many tasks and end up being over occupied. This divides their time and efforts. Your old and trusted employees need to become part of your key team which will help you in business growth rather than investing time in same monotonous tasks on daily basis.
  • A Big portion of your time is going into monitoring the payroll functions: You are meant to take the business ahead and look for growth opportunities and not micro manage. More than 50% of the Indian business founders end up investing their time in either micro managing or monitoring. As a growth mindset, you must not look at payroll outsourcing as an expense but as a business strategy.
  • There is a delay in employees’ salary: Let us put some light on some practical areas of life. Its either your employee or you, money is the biggest motivation. When Payroll is managed inhouse and if there is a delay in salary of even a single day, it stirs the mind of your employees. Penning it down in a straightforward manner but there is no excuse for late salary disbursement. An employee waits for the salary credited message two days prior to the salary day as there are many other expenses apart from basic ones and biggest one is EMI’s. A small error in payroll process at your end may lead to EMI bounce in someone else’s loan account and it really affects the motivation to work.
  • Compliances are not adhered properly: Indian payroll process is filled with enormous laws and regulations for businesses and if anything is missed, it may lead to penalties or punishments. It happens rarely if an organization is well structured and employees are well-trained for all the Indian compliances but why to take chance? Penalties may affect your goodwill in the market and overall finance of the company. It is always best to handover such critical responsibilities on the hands of experts like payroll outsourcing partners.
  • Too much overtime: When there is over-time, automatically the total number of billable hours gets a rise and the expense is increased. If you witness too much of over-time or more than you expect, then there is a need of expert’s intervention. Now everything is evolving in a positive manner for businesses, gone are the days when over-time used to add value to the companies. Now, increased working hours is counted as a bad business strategy because at the end what matter is productivity of employee.

To summarize…

As an entrepreneur if you encounter the above-mentioned pointers in your current payroll management process, then the ideal time to shift to an outsourcing partner for payroll is the start of financial year as it would help you to incorporate in the payroll function:

  • Appraisals or CTC changes: CTC is a part of salary structure in Indian payroll. CTC means cost to company; it is the term for total salary package of an employee. Generally, in most of the organizations, CTC changes are done at the start of financial year as a part of appraisal activity. So, if you want to introduce new policies in CTC, then start of financial year is the right time.
  • Tax calculations/liabilities: In Indian Taxation System, Tax liability of an individual is calculated for the income during a financial year. So, outsourcing payroll function from the start of financial year makes it easy to calculate employee income and their tax liabilities.


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