Just like many other functions in the organisation, Payroll also plays an important role for its sustenance. It is far beyond the perceived bookkeeping task. Payroll determines how you reward and retain employees as well as compensate them for the work they've done. If there any errors due to miscalculation, the organisation will have an ever increasing number of dissatisfied employees. However, errors in calculations are not the only ones companies should worry about. With all the tax compliances and payroll regulations, there are tons of chances of going wrong. Which brings us to the importance of outsourcing payroll to the experts so that all these risks are reduced to a great extent.

Although outsourcing payroll has been proven to effectively reduce all hassles, it is important to avoid some mistakes while selecting a new payroll management system:

Cost factor:

Most companies make the mistake of choosing an outsourced payroll management system based only on its pricing. They fail to consider all the benefits that the payroll service provider have to offer that have the potential to minimise risk and ensure accurate compliance. Pricing is important but not as important as efficiently managing your current software and payroll salaries. Apart from calculating the true cost of managing your payroll internally, it should also process query management, manual paperwork, software shortfalls, payroll training, adequate staffing in an event of an emergency. In addition to making sure the pricing is right companies need to make sure that the true value that all the new benefits of the software and service will be a valuable addition as well.

Over dependence:

When companies outsource their payroll requirements to the experts, they are under the assumption that the service provider will take care of all their payroll matters. Surprising this is a common misconception than thought possible. The service provider will only be obliged to provider services that the company has asked for and rarely anything beyond that. Thus it is better to make sure that the service provider is qualified to help companies with all their needs and not just manage the software. Reliable partners have the experience to not only communicate important tax and legislative changes, but they also assist with best practices so that companies have all services tailored as per their needs and requirements.

Security check:

It is highly recommended that payroll service provider have a specialist payroll software. In processing payroll there can be many contacts each pay run. If there is need of making any adjustments, they should not be waiting for faxes. All data needs to be transferred securely. It is a breach of the privacy act to share this information over an email without encrypting it. In case the company has more than about 5 staff they need to make sure all transactions are securely made and as per the appropriate norms, eg. through bank transfers. Email is not encrypted and is not secure. Most accountants and bookkeepers do not have the software to transfer confidential payroll information securely and efficiently.

Maintenance of system:

Like every other IT system, outsourced payroll management systems need infrastructure, support, software, and regular maintenance. A process which requires additional costs apart from the regular pricing. But with IT staff often involved in maintaining HR systems, it can be difficult for HR Managers to track their system maintenance costs. Thus every expenditure needs to be accounted for so that there are no surprises later on.

Payroll Documents

The most common problem shared by many companies is that all important payroll and employee records and information are not organized in an effective and accurate manner. Sometimes it is simply a matter of workflow: not keeping files and documents in a central location or creating uniform filing processes. A typical issue is storing and organizing paper checks, for example

Overtime Rules

Both federal and state laws require most employers to pay employees overtime for hours worked above the normal 40 hour work week. While the specifics can differ depending on the state and even the locale, overtime generally consists of an additional 50 percent of the employee’s typical hourly wage. However, because of the varying statutes and exceptions that overtime laws provide for, this is a payroll process that is prone to mistakes.

Employee Classification

Many small businesses make use of different types of workers. This can include permanent part-time employees, temporary employees, freelance contractors and vendors. This variety in worker types and classifications can often lead to payroll issues.

It is critically important for a company’s workers be classified correctly for tax purposes, since misclassification can result in not paying their owed taxes. Failure to pay proper payroll taxes will likely lead to the IRS requiring the business to pay taxes on income paid to employees as well as fines and penalties.

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