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SME Business Outsourcing – What you need to Consider

Posted by: on 27 April 2016 in Compliance, Legislation, Payroll, Tax

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The number of businesses that are making the switch to outsourcing in Australia is increasing. Small to medium sized businesses (SMEs) in particular can gain the greatest benefits, according to the Australian Payroll Association’s Payroll Benchmarking Survey, 2014.

Complying to changing legislation, increasing costs and risk associated with payroll processing are some of the main reasons why SMEs switch to outsourcing their payroll. Although every business’ needs are different, it’s important to consider the benefits and challenges of outsourcing payroll which can affect each enterprise differently.

1. Cost 
ADP Research has shown that smaller businesses and larger corporations, in particular, experience the greatest cost benefits when it comes to outsourcing. For a small business, this is often due to lack of a dedicated resource – unlike a mid-sized company where there is often in-house expertise. And according to the Australian Payroll Association’s survey, for businesses with less than 200 employees, processing payroll in-house can cost twice as much than outsourcing to a third party. Conversely, large companies tend to outsource payroll in order to free up their resources, focus on core activities and streamline processes.

2. Compliance
Legislation in Australia is complex and frequently changes. Staying on top of these changes is critical to avoid penalties and unnecessary costs. For the SMEs with limited resources, this can be a burdensome and risky task. One of the main benefits of having a third party supplier manage your payroll is that it ensures your business meets any payroll legislation requirements and changes.

3. Data security and protection
Keeping employee data and information secure and protected against system risk or disasters is critical for any business not just small to medium. Businesses need to ensure that data is protected with various restricted access levels and that data can be easily accessible in case of a system failure or a disaster. Third party suppliers are generally fully equipped with superior data protection and disaster recovery protocols as well as back-up systems and multi-off-site data centre facilities.

4. Managerial Control 
A major concern businesses have with outsourcing payroll services is losing managerial control over their payroll function, particularly with regard to their employees’ confidential information. Another concern is a third party’s ability to maintain quality standards, delivery formats, timing and data integrity that the business is accustomed to.

5. Customer Service 
On time and accurate delivery of wages, flexibility to make ad-hoc changes and immediate response to employee queries are critical to employers. Small to medium businesses often perceive that by outsourcing, they lose control of these aspects.

There are other factors that also need to be considered:

The best-fit model
Regardless of whether you decide to keep your payroll in-house or outsource, there are many options to cater for different business needs. Software-as-a-service (SaaS) is a way of providing software that makes applications available over the internet, typically using a web browser which removes the need to install and maintain software locally. In a SaaS model, the supplier manages access, security, availability and performance which reduce the need to purchase hardware or software.

With Managed Services, the third party supplier manages the whole payroll process from start to finish. This model can minimise business risks, relieve organisations of any legislative and compliance concerns, and is suitable for any businesses needing expert assistance.

Partnering with the most suitable provider
Choosing a payroll provider when outsourching depends on many factors such as: expertise – product and local market, understanding of your business’ needs, breadth and flexibility of offering, superior levels of customer service, financial viability and the right culture fit for your business. Large providers often have the breadth of service, product coverage and flexibility to match varying needs that can support businesses at different stages of the business cycle. Smaller providers, on the other hand often specialise in niche markets.

Case for outsourcing payroll
While businesses face many options when implementing a payroll process, it’s important to consider these factors. And although businesses of all sizes can benefit from an outsourcing solution, the benefits for small and mid-sized businesses are the greatest.

It is important to remember that researching and choosing an appropriate method of outsourcing is essential. Outsourcing can enable your business to remain legally compliant, provide your business with further cost savings as well as help ensure stability within your business.

Written by: The Connect@ADP Team


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TAGS: business Compliance Cost Outsourcing SME

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