Why do companies hire on third-party payroll?

Most business owners would agree that salaries and payments are the core of the business since they populate the Sales, General & Administrative lines. However, a large portion of businesses around the world outsources this function to third-party service providers.

  • Payroll management services, including: offer a variety of services
  • Timesheets can be integrated into tax liabilities and payable salaries.
  • Tax-deducted at source, tax filings, and deductions management
  • Management reports.
  • Management of wage garnishments and other ad-hoc requirements
  • Processing payment discrepancies.

One-fourth of all businesses use third-party payroll services. This means that there must be some specific benefits for companies who outsource. These are the benefits business owners choose to outsource their payroll management over in-house.

Increases cost-efficiency: Hiring and retaining talent is completely different from payroll processing. Businesses view people operations as critical to their long-term strategic adherence. They want to retain and hire the best talent for their strategic initiatives. The entire payroll operations process is heavily rule-based. A business can make its payroll operations more efficient if it has the right infrastructure, such as technology, bank relations, and update mechanisms.

These efficiencies require significant investments, which can result in marginal increases in expenses. This means that if the company’s hiring capacity increases, it will need to pay more even if the resources required to change the payroll system are increased.

Service providers of payroll management services already have the required investments in the systems to unlock cost-efficiencies. There is also hardly any difference in the cost of hiring additional people.

Ensuring Compliance: While cost-efficiency helps businesses maintain profitability, compliance can pose a significant operational challenge. Even if the business does not employ unionized workers, it must comply with federal and local laws.

A business’s need to constantly update its payroll system by changing labor laws can be a huge headache. The problem can get worse if a business has operations in multiple countries. A payroll-management partner can streamline a business’s payroll compliance process.

Payroll-management service providers are in the business of managing payrolls. This means they can afford dedicated resources to ensure compliance with changing laws.

Standardizes Payroll A high-performing employee wouldn’t want a delay in receiving her monthly payments. Even though employees don’t depend on their monthly salaries for their bills, they still have significant expenses such as rent and installments to be paid. Employees would feel the heat if a company fails to pay its employees’ payrolls.

Payroll management companies have developed relationships with financial intermediaries and banks. Because they process a lot of transactions, all transaction flows are standardized. This allows businesses, regardless of size, to benefit from standard payroll processes and employees to have their bank accounts credited consistently, month-to-month.

Quick Turnarounds: Integrating a significant change into a payroll process can be a major challenge for any business. To ensure that the payroll process is running as planned, a business must consider different functions such as Finance & Accounts and IT & Systems. A business must fill out a change order when a third-party system manages its entire payroll. Vendor-operated payroll management systems often have turnkey solutions built into them, allowing them to execute change orders from all businesses quickly. This allows a business to make changes to its payroll policies quickly without mapping out the obstacles it will encounter in executing those changes.

Lead times are reduced. In-house payroll management services and third-party payroll management services have significant differences in lead times. The lead times for disbursements can be reduced dramatically because the processes, financial intermediaries, and technological platforms maintained by a payroll partner are more standard than those of a smaller company. This is due to economies of scale. A business can only invest in a small percentage of such systems. However, a payroll vendor makes crucial investments in such systems because it is the whole business.

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