How organizations can reduce cost of payroll processing by outsourcing it?

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Payroll Outsourcing has various advantages and is becoming part of many industries. An increasing number of companies both start ups and SMEs are bending towards smart decisions and handing over this crucial part of business to the experts.

What is Payroll Outsourcing?

Before going to the point, let’s understand the basics. When organizations hand over their part of any business activity to the outside experts that is called outsourcing and payroll services handled by outsourcing partner is what we call payroll outsourcing.

Why outsourcing payroll activities is a great option for organizations?

A business is not what it looks like to the outside world. Every business is different and so as the inside processes. What is right for one may not be suitable for many others. Payroll as a saying is a term, but while going into process, every company has their own payroll processes, compliances, provisions, policies etc. This is the era where ROI (return on investment) matters. Rather than handling each activity solely, smart entrepreneurs’ hand over the segment to the outsiders. Of course, reliable ones. The chances of division of efforts are high when payroll is handled in-house. This is a changed era where entrepreneurs want to focus on actual areas like growing the annual turnover, improving the cash flows, cost cutting, better resources, resource allocation, business revenue forecasting, ROI, etc.

How payroll outsourcing can reduce cost of processing it?

Have you ever wondered how much your organization is really spending on payroll processing? You may not be considering the ‘hidden costs’ related to administrating important processes and as a result you maybe spending more than what you think.

Payroll outsourcing delivers lower TCO (Total cost of Ownership) than inhouse systems.

Just in case you don’t know what is TCO; the total cost of ownership (TCO) is the purchase price of an asset plus the costs of operation. Assessing the total cost of ownership represents taking a bigger picture look at what the product/service is and what its value in the long run. The total cost of ownership, or TCO, includes the purchase price of a particular asset, plus operating costs over the asset’s lifespan.

The process of TCO calculation is so detailed that it may turn up your entire calculation. It encompasses not just the purchasing, installation and services costs but the additional charges, hidden costs, maintenance, purchase of new hardware systems and this is not a one-time expense, the amount of time, efforts and money goes into maintaining the inhouse solutions it pushes the TCO on higher side.

A study has revealed that higher TCO is a danger for organizations and those companies with lower TCO has higher productivity and performance levels. From a far sight the differentiation seems to be an apple-to-apple comparison but if you dug deeply, outsourcing the payroll management will keep you in safe zone.

The most common hidden costs in in-house systems;

  • Recurring system updates
  • IT labour costs incurred for maintaining the systems which includes salaries, wages etc.
  • Not labour costs like overheads, infrastructural costs, electricity, facilities etc.

In contrast, outsourcing the payroll activities will anytime reduce the over all payroll processing cost. It also increases the transparency in terms of expenses made for payroll processing.

The immediate cost of processing payroll can be incredibly decreased by partnering with payroll outsourcing experts. Huge organizations can bear and maintain powerful payroll departments. However, Small/medium sized businesses, having an in-house payroll process is a money burner. You’ll probably be surprised by the result if you calculate in detail and when you consider the cost of an employee’s wages, then add in benefits, that can really add up quickly. If you are the owner of a small to medium size company and you are trying to do payroll yourself or in-house, the cost of the time spent is even greater. If you outsource payroll, you don’t have to worry about your payroll processing company calling in sick, resigning, wanting to take a vacation OR wanting to request a possible maternity leave that you have to pay for. There’s also the matter of confidentiality when it comes to payroll. An experienced and expert from accounts background will always suggest to outsource the payroll services.


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