Payroll Software or Payroll Outsourcing? What should you select?

Payroll is an important aspect of human resources, especially in a large firm which has many employees. With most departments now being computerized, it only makes sense to use technology to efficiently manage payroll as well.

Growing companies planning to expand its employee base need the professional HR Payroll software Primo Payroll. Payroll software automates the process of paying salaries to employees and streamlines the process by reducing the amount of paperwork for the accounting department. Software also ensures accuracy in computing numbers and eliminates financial errors. Some HR managers have happily made the shift to a payroll software system, but still there are some who would argue that payroll outsourcing is a better option. Payroll outsourcing is the process of giving the entire job of payroll to an external agency whereby you save on staffing costs and receive peace of mind.

Choosing between deploying payroll software for internal use and outsourcing the whole process to an external company is a difficult decision. Both these alternatives are mutually exclusive and need thorough research. This is a high impact decision and cannot be made without considering the pros and cons of both these options. Moreover, one cannot rely on the experiences of another company or professional as the nature, industry and processes of every company is different. What works for one company, may or may not work for another company.

There is no clear winner between the two options. It really depends on your exact requirements and which of these two options fulfills all of your needs. To decide upon which option is best for your situation, there are a few key points to consider:

1. Firm’s budget

Both these alternatives come with their own set of costs. Buying payroll software requires investments in the software as well as on maintenance and training. While outsourcing, the foremost savings are in the form of staffing costs. You do pay for the outsourcing service, but can save on time required to train staff. You also need to consider the salaries paid to the employees to operate the software. Paying an outsourcing agency means a recurring monthly cost, which may eventually exceed the cost of purchasing payroll software.

Therefore, depending upon your budget, you may decide to accept the one-time cost of buying the software or you may decide to pay an outsourcing agency monthly.

2. Integration Factor

A major consideration for most firms is the ability to integrate payroll with other business processes. The idea is to reduce the number of different systems deployed by the firm and access an integrated system instead. Integrating payroll with other HR functions such as time and attendance can reduce inefficiencies and make administration robust! A firm can either choose to integrate these functions in-house or simply outsource to a firm which offers an all-inclusive HR integrated software.

3. Data management

Payroll software can store all aspects of data from an employee’s details, from the moment they join to their retirement. Historical data in payroll is essential for an HR manager. How conveniently are these details available when needed is the real question which helps answer the question of in-house software or outsourcing? If you outsource payroll, you may have to wait for a few hours or business days to obtain the required data. On the other hand, in-house software would mean that you will have the data when you need it without going through the trouble of calling a representative to email you the details. Exporting data from a payroll software is really easy and can help HR managers make quicker decisions.

4. Training employees

If you already have employees who are handling payrolls, you need to consider how fast they can learn using the payroll software. Processing payroll requires complicated calculations such as base pay, annuities, taxation, health deductions, hourly rates, overtime, weekend pay rates, paid leaves, unpaid leaves etc. Understanding all these functions using payroll software can be time consuming. Moreover, every time a trained employee quits the company, you will need to invest in resources training a new employee. Employees also need to consider the possibility of updates in the software, which may require additional training over a period of time.

Also, if you do not have anyone who can take the responsibility of managing the payroll software, then it is an obvious choice to outsource. Instead of spending resources on training, outsourcing becomes a smarter choice.

5.  Risk Factor

Though every business would like to keep risk to a minimum, every business has a different level of risk tolerance. This appetite to accept different levels of risk can help you determine whether to outsource or go with an in-house system. When opting for in-house software, there is always the risk of the computer crashing and data loss with installation based software. You may not have the resources to maintain an off-site backup of your data. This can be eliminated by outsourcing to a company that has a data protection facility.

Having considered data loss, we are also required to look into data theft, which is a possible threat when outsourcing. If you feel that your payroll data is sensitive, then you may not be comfortable sharing your data with an outsourcing company.

When making a decision with regards to payroll, carefully consider the above mentioned factors. After evaluating the pros and cons of both these options in relation to your own firm and needs, you will be able to make the right decision for yourself.