Can Small Businesses rely on Payroll Outsourcing?

At some point, your business may have at least one employee, which means you’ll need to manage payroll. Calculating and delivering payroll can be complicated, especially if you’re not a financial expert. That’s why many business owners choose to outsource some or all of their payroll responsibilities to a third-party provider. However, deciding whether outsourcing is the right choice for your business can be challenging.

The below-mentioned considerations can help you get through the details:

Two sides of a Coin in terms of Payroll

A few factors 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. Payroll management is a very complex module for them, but still when they can’t afford it. It’s a do-or-die situation.

On the other hand, taking the DIY payroll approach can be time-consuming and expose the company to unnecessary and unwanted risks.

In a recent Global Payroll survey, HR professionals reported spending 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 that may not have a dedicated employee to complete 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

1. Operations
2. Generating new business
3. Generating Funding
4. 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 small business decides to outsource its payroll, it should ensure that the costs are transparent and clear before signing up with a payroll provider. It is crucial to choose a reputable payroll provider that clearly specifies the monthly costs up-front. This will allow the small business to plan for payroll expenses each month with zero errors and no additional expenses. Payroll providers offer various add-on packages that cater to the specific needs of the organization. Therefore, small business only needs to pay for the services that are relevant to them.

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 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 a thorough knowledge of this in their niche, specifically for a small business.

If a company expects its business will eventually grow, it must not forget to ask its 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 anymore about payroll software, approving bank transactions, payslips, TDS Filings, or Form-16, we handle all of these and much more.

Write to us at sales@relativity.co.in or call us at 093611-41436 for more information. 15 years in Payroll, Compliance & Taxation!