Payroll outsourcing involves using an external service provider to handle all the administrative and legal aspects of paying your employees’ salaries accurately and on-time.
Effectively managing payroll is a critical business activity. Errors can result in a significant impact on employees, whether in financial hardship or demotivation. Employees can lose trust and disengage from their work, and potentially you may even lose your employees if you are unable to guarantee accurate and timely salary payments.
Payroll processing is also one of the most challenging and time-consuming functions for HR to handle. It requires specialised staff who administer the financial aspects of the role as well as keep up to date with appropriate rules and regulations. The in-depth knowledge required to handle payroll processing effectively means that any disruption in staffing due to illness or loss of expertise can significantly impact the organisation.
Companies are increasingly moving to outsourced payroll services to enable them to move away from this type of repetitive administration, reduce dependency on specialised skill sets, and focus limited resources on more strategic and value-add engagement activities with employees and business leaders.
Core reasons why companies are choosing to outsource payroll processing include:
- cost reduction through not needing to employ specialised in-house resources to manage what can be a complicated process
- greater efficiency and accuracy of processing with a specialist service provider
- ensuring worry-free compliance with legal requirements
- freeing HR resources to focus on engagement activities and those functions that require more significant employee interactions
Let’s take a look at these reasons in more detail:
1. Cost reduction
While large organisations can afford to run payroll departments, this is not a viable expense to bear for small and medium-sized companies.
Preparing and running payroll cycles takes significantly more time, and attention to detail, than many people realise.
Time is required to calculate employee hours, deductions, paid time off, and sick leave, and then there is the printing, signing and distributing pay checks and generation of payroll reports. Add the time it takes for your resources to keep up to date with the latest laws and regulations, and the time taken to effectively and efficiently manage your payroll becomes significant.
If you multiply the hours spent by your internal resources’ salary cost and compare with the cost of outsourcing, you can begin to appreciate how much saving you can make.
2. Greater efficiency and accuracy
Accurately handling payroll is essential. The more the size of your workforce increases, the more time-consuming and complicated payroll can become.
Keeping track of benefit deductions, leavers and joiners, paid leave, pensions and any other individual deductions such as for loans, advance payments or bonds is complex. It is easy for mistakes to happen, especially when the process may not be fully automated.
When large amounts of data are manually input, it is time-consuming to check regularly, and human error is bound to occur at some point in the process. With a payroll service, output speed and quality also don’t vary because of leave breaks or illness.
Outsourced payroll companies are highly automated and have specialised resources that can quickly respond to changes in processing, laws or requirements for new payment services that you may have.
Once payroll is being taken care of by your service provider, you usually only need to check in once a month to approve time and authorise payment.
Another issue that can cause friction in the workplace is a breakdown in data security and leaking of employee salary details. With an outsourced payroll provider confidentiality is protected.
3. Worry-free compliance with laws and regulations
Payroll mistakes may damage your relationship with your employees, the image of your company, and your relationship with governing agencies.
Laws and regulations frequently change, and there are often complexities in determining when a particular rule may impact specific employees and when and how to implement.
Professional payroll service providers must stay current with rules and regulations and have resources dedicated to reviewing all the changes that could affect your payroll, ensuring that you remain in compliance. An outsourced payroll servicing provider is less likely to make a serious error than your internal payroll resources.
In the UAE, outsourced service providers use the Wages Protection System (WPS) – an electronic salary transfer system created by the UAE Central Bank, allowing organisations to pay salaries through agents approved by the Central Bank of the UAE, including financial institutions, banks, and money exchanges.
The Wages Protection System allows the Ministry of Labour to record salary payments to guarantee timely and full payment.
4. Freeing HR resources for more impactful value-add activities
By outsourcing payroll, HR teams can increase the time they spend on the value-add employee-related activities that impact the organisation’s bottom line, such as performance management, talent management and learning and development.
Automating routine administrative tasks also enables them to introduce new initiatives to improve the overall employee experience and support business success.
Working on more strategic tasks benefits employees and management and makes the role more satisfying and rewarding for the HR employees.
An increasing number of businesses have either already outsourced their payroll services or are actively considering doing so in the near future.
If you are considering outsourcing your payroll, these are some of the questions you should ask:
- What are the services offered?
- Do they use the WPS salary transfer system?
- How do they secure employee and payroll data?
- How many customers do they have?
- How long have they been handling payroll services?
- What rates do they charge per employee?
Our HRBluSky platform provides you with an unlimited number of reimbursement components to meet your organisation’s needs.
Payroll processing seamlessly integrates across other modules and with external service providers for salary processing using the WPS electronic salary transfer system.
HRBluSky has inbuilt UAE labour law features and includes employee recruitment, visa, insurance and end of service benefits costs. These are all included in the system, enabling you to track hidden employee costs and support more accurate forecasting for your HR budget.