Friday, 13 April 2012

Top 4 Payroll Outsourcing Myths You Can’t Afford To Believe

payroll outsourcing
In recent years, businesses have taken to Payroll Outsourcing like birds take to the South during icy European winters. There are many benefits to Payroll Outsourcing and businesses have realized they can save money, avoid legislation hassles, prevent HMRC penalties, minimize risk, and narrow their focus on achieving business goals. Despite the gaining popularity of Payroll Outsourcing, there are several myths that have grown around it.

I have consulted QX’s Mahesh Jain, SR. VP - F&A, Operations to help disperse some key myths surrounding Payroll Outsourcing.

“In spite of the benefits in doing so, there are still a number of small and medium enterprises that haven’t hitched the Payroll Outsourcing ride. Whereas bigger businesses have taken the plunge, citing payroll’s non-contribution to a business’s core activities as the main reason. They believe the time spent on laborious tasks can be used for more creative pursuits like growing a business”, quips Mahesh.

Other than the obvious benefits of cost arbitrage, outsourcing your payroll helps reduce overheads that come in the form of: Recruiting and Training specialist payroll staff, Buying and Maintaining Systems and Software, and Dealing with HMRC.

To help you make that decision that you’ve long been avoiding, I have penned the top 4 myths to correct the widespread misconceptions.

Myth # 1: We’ll lose control of our payroll

More often than I can count, I hear business people say, “We’ll lose control.” This is a myth and, for a fact, the opposite is true. In reality, if you have defined your SLA’s and KPI’s with the outsourcing partner, you will actually notice an increase in control.

According to Mahesh, “QX works on the client’s servers and as per their reporting tools. In effect, the client manages the business just as before, the only difference being it is run elsewhere. The client sets the job responsibilities; monitors an employee’s performance and measures the defined goals. Each of our clients have a single-point-of-contact who reports directly to their Head of Finance. Since QX is connected via an international private leased circuit, our client’s enjoy a next-room telephony experience which is just like to talking to your employees in a cabin next door. So with QX you lose the cost not the control. ”

In a collaborative outsourcing relationship, the outsourcing partner manages the payroll and the client retains complete control over it. The client will not only gain from the expertise of the service provider, but will actually be in greater control.

Myth # 2: Our data won’t be secure

This one is omnipresent and lamentably is still a myth. In conversation, I have chanced upon many Finance Directors who worry that their payroll data is at a risk of being lost or misused. Since any lag in security can put the outsourcing provider out of business, most of them make considerable investments in technology and have back-up systems and software in place. Data security is a top priority with any outsourcing provider. These include but are not limited to physical security manned entry points, data transfer infrastructure, firewall defenses and clear desk policies.

Then there is also a concern over the transfer of sensitive financial information that an outsourcing service provider handles. “QX is covered by the Data Protection Act and it is our duty to comply with the legislation associated with the act. It would put us out of business if we did not”, rounds off Mahesh.

In summary, I believe that a client’s data is more secure with an outsourcing company than it could be anywhere else.

Myth # 3: Outsourced service providers lack expertise to run payrolls.

This myth has some credence to it only if you have overlooked important details while choosing your outsourcing partner.  I’d recommend you run company background checks, ascertain if their management procedures are based on current ISO (quality) standards, ensure they have NDA (non-disclosure agreements) in place, ask for references, visit and see them at work.

Running a payroll is a core business function for any F&A outsourced service provider. They are experts at what they do. So it shouldn’t come as a surprise that your outsourcing partner provides a dedicated team of professionals who are trained extensively to run your payroll.

According to Mahesh, “QX invests extensively on each employee that works on your payroll. All our employees are accounting graduates who have had some experience in processing payroll. They go through the grind of a month-long training program and emerge as payroll gurus. Many of our ACCA certified accountants are well-versed in UK accounting and payroll standards, which translates into strong domain expertise. And since we appoint a single point of contact the client’s FD knows everything as it happens. Our payroll team is trained comprehensively in the use of various payroll software too. These include but are not limited to Safe Tempest Software, Merit, Sage, and Payroll Manager.”

He continues, “To ensure that we don’t miss on a single time-sheet, we have an In-house Payroll Management Software System which keeps track of all time-sheets. This system sends automated messages every time it receives or processes a time-sheet. The client can also see the system and learn whether we have received the time-sheet or not. Using an advanced technology in our payroll management system, a pop-up is delivered to the user processing the times-sheets, which takes care of any complex rules set by our client’s customers. Overall, this has a positive impact on the quality of work we do and leaves no room for error.”

Myth # 4: Outsourcing companies can't get the payroll done on a specified turnaround time

Fact: UK Companies outsourcing to India gain from the time difference. Since India is 4.5 hours ahead of UK, the zonal time difference plays a big role as India continues to work while UK is still waking from sleep. I have an interesting case study to present here. This like the rest of the post was developed in conversation with Mahesh.

He said, “A few years ago, one of the top 250 recruitment companies in the UK had a few doubts before they could decide to outsource their complex payroll to us. One of their concerns was that the TAT (turnaround time) was not maintained by their existing payroll team and reports of daily processed time-sheets where only available near the end of the day; hence the temps were paid late. To sort this out, we started working on the payroll process for the pilot batch, and ensured that preliminary payroll reports were provided to the respective divisions at 08:30 AM. Ergo, as soon as the recruiters walked into the office they were able to answer any queries raised by the payroll team and get their candidates paid on the same day. Effectively, the confidence of the temps increased and resultantly more referrals were achieved.

Result: This reputed client of ours was able to keep its focus on growing the business and was able to acquire a few more companies, as they now were sure that their payroll was in safe hands.

Conclusion

With this blog post I hope I’ve dispersed some key myths surrounding Payroll Outsourcing. I believe this will assist you in making a decision that you’ve long been avoiding.  If you want to debunk any other myths, have questions or arguments please leave your thoughts in the comments below. Contact QX here.

4 comments:

  1. From a Nordic perspective - it´s more or less the same conclusion. No doubt, the way to avoid those myth´s, is to take control of the process. If customers only rely on the suppliers ability to design, implement and operate - there is a risk of "activate" myth# 1!

    When suppliers cost of operation vs. SLA/KPI is turning into P&L optimization - thats where you lose control.

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  2. I guess my remaining question is whether an outsourced company can use data from a time clock. We don't have time cards anymore, just electronic times recorded by a web-based time clock.

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  3. @ Henrik - Thanks for your thoughts Henrik. Outsourcing is a two way
    process and businesses need to work  together with the supplier to not
    only build two very successful organizations, but a very successful
    working partnership. The responsibility to design, implement and operate
    is always discussed between both the parties and implemented only when
    our client's management approves.  About the 'cost of operation vs.
    SLA/KPI' argument, I agree with you to a certain extent but I also
    believe that we can still have a low cost of operation while still
    maintaining the standard KPI's which would not only lead to greater
    profitability but also greater control.  

    ReplyDelete
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    ReplyDelete