Payroll Insights
June 6, 2024

When is managed payroll a good fit for your organisation?

Knowing when to outsource a business function can be tricky. We explore the top benefits of outsourcing payroll and how to know if it’s right for your organisation.

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Operating costs are at record highs due to inflation and disruptions to the global supply chain, affecting everything from oil to agriculture to construction and production materials, reports FrontierView. As a result, many organisations are operating with leaner margins, and that’s likely to continue. 

It’s challenging and expensive to maintain a payroll operations team that is current with the latest geo-specific payroll and tax requirements, and that can support compliance with data privacy, cybersecurity, and audit support. The pandemic’s squeeze on budgets has spiked demand for outsourcing. Many organisations in the manufacturing and finance sectors are turning to service providers for flexible payroll operations to help streamline their core processes. Why is this? 

McKinsey notes that in some industries, such as manufacturing, it can be more advantageous to outsource business functions such as payroll to divert resources to more strategic objectives.

Processing payroll internally isn’t always the most cost-effective option, as staying up to date on personnel changes, tax and legal requirements, deadlines, labour regulations, and reporting obligations require expertise, time and ultimately, additional cost. 

As businesses grow, outsourcing can be an attractive option to support efficiency and to allow the team to focus on core business activities. More leaders are turning to managed services to reduce the time spent on payroll and focus more on driving efficiency and growth. 

Here, we’ll cover some key indicators that your organisation should consider payroll outsourcing. 

High staff turnover 

Running payroll in-house requires a skilled finance and administration team. Without the right talent or a succession plan in place, you could face vacancies for extended periods as payroll practitioners move on or retire. And it’s a costly problem, too – HR Singapore estimates suggest that the cost of replacing a payroll employee can be up to 50-60% of their annual salary. Hiring for specialised roles is even more challenging during the current labour shortage. Outsourcing payroll helps you worry less about the impact on payroll during staffing shortages. 

Another benefit is that your existing team can better focus on strategic work beyond manual admin tasks. Outsourcing helps frees up time and resources for them to work on business development instead of spending time calculating pay deductions, accounting for missing hours, and determining information for taxes. 

HR Singapore estimates suggest that the cost of replacing a payroll employee can be up to 50-60% of their annual salary. 

Increasing payroll complexity and hefty penalties 

Did you know that failure to pay Central Provident Funds (CPF) contributions in Singapore can result in a fine of up to S$10,000 and/or up to 12 months imprisonment? Meanwhile, in Australia, the Closing Loopholes Act has introduced a stream of new changes to the workplace, such as amending the casual employment definition, and increases to penalties for underpayment and intentional wage and superannuation theft provisions.. 

Not all organisations have extensive time and resources to dedicate to researching, understanding, and applying applicable payroll and tax regulations. Navigating varying requirements across multiple countries makes this task even more challenging, making an already complex payroll system even more complex.  

Beyond regulations, organisations also need to consider data privacy laws and data residency requirements, as payroll information contains personal and confidential details of employees. The threat of cyberattacks continues to rise, and a Venafi study of 1,000 CIOs found that 82% believe their organisation is vulnerable to these attacks. Mishandling or unauthorised access to this data can result in privacy breaches, causing reputational damage, regulatory scrutiny, and heavy fines. 

Many organisations struggle with the time commitment of keeping up with ever-changing compliance requirements. Technology can help automate certain key legal changes to help you comply with variable payroll tax laws, union policies, employment laws, and data privacy laws across all your operating regions. 

Plans to expand to new regions 

The pressure to transform payroll into a more strategic function is increasing. At the same time, businesses are contending with a borderless workforce that requires a globalised pay strategy. 

Rapid growth and geographic expansion can place new pressures on the payroll and HR team and may require technology upgrades to manage global payroll. According to CIPD’s People Profession 2023 report, there is 1 HR staff member per 50 employees in organisations across Asia Pacific. Organisations operating in multiple regions may struggle to add headcount to meet this ratio or may not have payroll management experts in every region. Often, payroll practitioners are certified at the regional or national level, so current staff may feel unequipped to take on new legislative environments. Relying on professional off-site team allows your organisation to reduce the need to train in-house payroll staff and gives you the freedom to expand with compliance support in new regions . 

With the flexibility of managed services, you can scale more easily, tackle acquisitions, add remote workers, and expand into new operating regions while supporting business continuity. An outsourced cloud solution ensures that payroll operations and delivery can run from anywhere at any time. 

Accurate and efficient reporting 

Even when organisations have dedicated staff or a system in place, they are always looking for better ways to increase accuracy and efficiency. Deloitte’s 2020 PR Benchmarking Survey found that 89% of companies track payroll error rates as a KPI. Coincidentally, many also report spending significant amounts of time processing, auditing, and reconciling pay. 

There’s much preparation leading up to payroll processing cycles, especially for more complex workforces. Calculating hours and absences is more difficult for teams with hourly, full-time, and contracted employees. Payroll inaccuracy becomes more likely as organisations continue operating with siloed solutions. Reconciling reports adds even more time and resources to the administrative load. 

Payroll accuracy and efficiency are difficult to achieve when your organisation lacks the right people with specialised expertise. Partnering with a managed payroll professional allows you to offload much of the administration work of processing and monitoring payroll and helps gives you the confidence that your employees are being paid accurately and on time. 

There are many factors to consider when deciding which approach to payroll is best for your organisation. Outsourcing payroll can help your organisation reduce risk, improve visibility into pay activities, and refocus your team’s time and effort on strategic initiatives that generate value. Learn more about how managed payroll can support your business continuity plan and create space for your next opportunity to grow.   

With 30 delivery centres worldwide supporting 200+ countries and territories, Dayforce Managed Payroll Services helps growing organisations reduce costs, navigate regulatory compliance, and streamline efficiency.

Contact us to learn more.   


This blog was originally published on April 22, 2024 and has been updated with new regional information.

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