Can Small Businesses rely on Payroll Outsourcing?
One fine day, your business will grow to have at least one employee, the moment you start hiring an employee, you are responsible for calculating, managing, and delivering payroll. Since this can be a little complex process for business owners as not all will be experts in the financial roles, many choose a third-party provider to handle few or all payroll responsibilities. Sometimes it can be tough and confusing thing to determine whether payroll outsourcing is right for your business.
The below mentioned considerations can help you get through the details:
Two sides of a Coin in terms of Payroll
There are few factors that contribute to your payroll outsourcing decision making.
On the one hand, Small Company Owners may feel that their small business can’t absorb the added cost of paying someone else to manage their payroll. No matter the payroll management is a very complex module for them but still when they can’t afford. It’s a do or die situation.
On the other hand, taking the DIY payroll approach can be time-consuming and expose their company to unnecessary and unwanted risks.
In a recent Global Payroll survey, HR professionals reported spending on an average of 11 hours per week processing payroll, with an additional 5 hours spent processing employee benefits, and another 1.8 to 2 hours managing time off. Combined, this amounts to over 17 hours spent each week on tasks that can largely managed with the help of an outside payroll services provider. Assuming a 45-hour work week and an annual salary of approximately Rs. 6,00,000, this equates to over Rs.2,80,000 paid to an in-house employee just to manage payroll and payroll-related tasks.
For small businesses who may not have a dedicated employee for completing these tasks, the numbers are even more stunning. In a recent study conducted by The Electronic Transactions Association, small business owners valued their time at Rs.1000 per hour.
Considering the business owner is principally responsible for
- Generating new business
- Generating Funding
- Other core tasks
This assessment can represent the business owner’s value to the business. In organizations where the owner is investing time in payroll, this corresponds to an annual outlay of Rs. 87,60,000 per year.
This is not just about the time value isn’t the only cost of keeping payroll in-house, however. Approximately 33% of all employers make payroll errors, which can cost money in the form of fines, Income Tax Filing Delays, Payslip Generation Delay, Confusion in employees about the pay, extra taxes, over-payments to employees, and additional administrative costs for finding and correcting mistakes occurred which will delay the payroll processing the consecutive month.
While these costs may vary widely across different industries in the market, they should be a consideration factor for employers.
Payroll Outsourcing Cost Analysis
While outsourcing payroll is a financial investment, it’s important to weigh that factor against the amount of time and money spent when processing payroll on their own. Also one should not forget that errors while processing payroll manually by the small business owners can also cost them money or time. For example, calculating or filing taxes incorrectly can result in huge fines or penalties. Each year, roughly 40 percent of small business owners incur an average of Rs.10,000 in Income Tax penalties. To avoid paying more than you owe, payroll outsourcing can help ensure you don’t miss key tax-filing deadlines and that your company withholds and reports the correct amount of taxes.
If a company decides that payroll outsourcing may be a more efficient stream for their small business, the costs should be very transparent and straightforward before signing up with them. They must choose a reputable payroll provider that clearly specifies the monthly costs up-front, so they can plan for payroll expenses each month with zero error and no additional expenses. Payroll providers will also offer various add-on packages that fits their exact needs, so they only need to pay for the services relevant to their organization.
Also Read: The 3 New Roles of the HR Professionals
Growing employee strength and payroll complexities
Many companies are implementing a combined workforce, which has further changed the payroll process. As a business grows or becomes more complex — such as taking on freelancers or paying employees overtime — the chances of making payroll and taxation errors can increase. A qualified and reliable payroll provider can help business owners handle various classifications of workers, even if they have full-time and part-time employees, independent contractors, as well as exempt and non-exempt or employees. It can also help them follow the central, state, and local rules around overtime pay as well as all the tax withholding and tax filing requirements.
Today’s regulatory environment, tax laws, and employment situations are extremely diverse and complicated. When shopping for a payroll outsourcing provider, must look for someone who has thorough knowledge on this in their niche, specifically for a small business.
If a company expects their business will eventually grow, they must not forget to ask their payroll administrator if they can scale with the business.
What you should know about us
Relativity offers payroll outsourcing solutions to fit the needs of any size business, with features that make it efficient to manage all aspects of the payroll process. Don’t worry any more about payroll software, approving bank transactions, payslips, TDS Filings or Form-16, we handle all of these and much more.
Write to us at [email protected] or call us on 093611-41436 for more information. 10 Years in Payroll, Compliance & Taxation !