The Shift Towards Payroll OutsourcingThe global coronavirus pandemic has prompted many organisations worldwide to examine their processes and move towards a more flexible working model.

The outsourcing of the payroll function is not exempt from this shift, with payroll outsourcing providers experiencing increased demand since the pandemic began.

This growth is not unexpected and follows a general shift towards outsourced payroll over the last decade. In 2008 an annual report by the Chartered Institute of Payroll Professionals (CIPP) found that just 10% of respondents partially outsourced their payroll processes, a figure which remained relatively constant until 2018 when it increased to 22%. By 2019, this had grown to 35%, and with COVID-19 fuelling the shift to more flexible business processes, there is every expectation that this figure will continue to increase in 2020.

So why are organisations moving away from in-house payroll processing and towards an outsourced payroll provider.

Reduced Operating Costs

One of the key reasons that organisations are making the shift to an outsourced payroll function is to reduce operating costs. While minimising cost has always been a priority for businesses, with a COVID-19 global recession now looking inevitable, it has become more important than ever to streamline operations and cut costs in order to keep trading.

With ever-changing payroll legislation affecting PAYE calculations, Local Property Tax (LPT) deductions, pension scheme administration, benefit in kind returns, coupled with the implementation of GDPR, and most recently the introduction of COVID-19 related payroll activities such as furloughing and redundancy payments, the complexity of payroll processing has increased significantly. As a result, the skills, training, systems, and knowledge base required to operate an in-house payroll function effectively can be very costly.

By appointing a payroll outsourcing company to run your payroll function, you are effectively receiving the benefits of employing a team of highly trained payroll experts, but without the related high salaries and ongoing training costs. Instead with an outsourced payroll service, organisations benefit from routine and predictable payroll cost and while receiving year-round support from payroll experts. Employers also do not need to dwell on the minutia of payroll processing but can focus on revenue generating activities.

Increased Compliance

Payroll management is a fast-evolving speciality, with regular legislative changes bringing new and often complex tasks to perform. In recent years, these changes have related predominantly to the electronic submission of data, and increasingly strict regulations regarding pension contributions, leave entitlement, time tracking, and labour classifications. The coming months and years are likely to bring even more change, not least the inevitable payroll reforms that the looming budget deficit will mandate, but also planned modernisations, such as the introduction of the Auto Enrolment which will come on stream in 2022

These general legislative changes combined with the 2018 introduction of the GDPR (General Data Protection Regulation), has significantly increased the opportunity for potentially costly compliance breaches. With maximum penalties for data breach at £17.5million or 4% of global turnover (whichever is greater), the cost of non-compliance is significant.

This is especially true for businesses that employ an international workforce. Payroll legislation differs from country to country depending on local regulations. As such, it is these local rules that need to be applied to ensure compliance. In the 2017 Global Payroll Complexity Index (GPCI), 65% of the surveyed payroll experts and professionals said that managing legislative, HR, and payroll updates presented their biggest challenge. Each country has its own economic conditions, currencies, culture, and statutes regarding payroll processing, making local knowledge essential to avoiding non-compliance fines. As a result, any multinational organisation which has centralised its in-house payroll service is likely to face an increased risk of compliance errors and financial penalty.

The advantage of an outsourced payroll service provider is that they are specialists in what they do and will have experts with local knowledge who can ensure that legislative and payroll processing updates are implemented correctly. By appointing a specialist payroll company like Paycheck Plus to process your payroll, you are mitigating the risk of both compliance errors and any resulting financial penalties.

Data Security & Confidentiality

In terms of data security and confidentiality, payroll departments hold possibly the most sensitive information within a business, certainly from a data protection viewpoint. Not only do HR and payroll records contain personally-identifiable information which fall under the remit of GDPR, but should personal details fall into the wrong hands, internally and commercially sensitive data such as employee salaries, bonuses, and employment benefits could become widely known, leading to staff discontent, a loss of competitive advantage, and potentially large financial penalties. This potential hazard has led to increased demand for executive payroll services.

When organisations conduct payroll processing in-house, the risk of a confidentiality breach is significant. Regardless of whether the in-house payroll processor is diligent and trustworthy, there are many opportunities for accidental data breaches. For example, an employee may see something on a computer screen whilst walking past, sensitive documents may need to be printed on a shared printer, or an IT technician may have access to servers, private or shared drives that hold sensitive payroll data.

At the current time, with many businesses considering salary freezes, pay cuts, reduced hours, or redundancies to keep trading through the coronavirus pandemic, the risk is higher than ever. An employee who considers that they have been poorly treated may misuse the information gained in their role, or the access permissions granted to them, to create disharmony. This is particularly true in the case of executive payroll data, where the confidentiality of payroll processing information is critical.

By outsourcing your payroll to a professional payroll service provider you eliminate these risks altogether, as well as ensuring GDPR compliance.

Article supplied by Morgan Campbell of Paycheck Plus