In-House vs. Payroll Outsourcing: Which One is Best for Your Business?

Will outsourcing payroll processing to a payroll service provider make sense for your business or should you continue to own the payroll service process in-house?

Comparing the cost of outsourcing your payroll vs. the Total Cost of Ownership (TCO) of payroll can be tricky to work out especially in MNC’s and regional enterprise businesses. At Links, we regularly help clients to review their payroll business cases and decide on whether outsourcing payroll makes financial sense for them. Here are some of the key points you need to consider when building your business case for payroll services vs. in-house payroll processing.

Getting to know your total cost of ownership (TCO) of payroll processing

It’s important to work out the true total cost of processing your payroll internally when building the business case for payroll outsourcing. Most companies will see the TCO for processing payroll as the salary they pay to the payroll person each month, plus the payroll service system fees. However, the TCO for payroll also needs to include indirect costs such as:

  • Any other benefits provided to the payroll resource including bonuses, pension, medical insurance, training,

  • Any internal overheads including laptops, licenses, software, office space, etc.,

  • Cost of recruiting a replacement incase the current employee leaves,

  • Hosting, maintenance and updating costs for payroll software,

  • Future costs for upgrading software and technology.

Working out the total cost of ownership of processing payroll in-house is critical to having an accurate business case to make the correct decision. Common ways to measure the total cost of ownership of payroll includes cost of payslip per employee or payroll per employee.

Cost Comparison Chart

What non-financial benefits will you get from outsourcing your payroll?

  • Higher Efficiency – As payroll outsourcing service providers specialize in payroll, a good payroll services provider will leverage their specialist expert payroll teams and payroll systems across a wide range of clients to ensure a more streamlined and accurate payroll experience. Best in class payroll providers will also be able to provide your industry best practices and advice to help you reduce the amount of time you spend on payroll each month.
  • Expertise and removal of key man risk – Payroll providers will be able to stay on top of payroll updates and labour law changes, making sure there are zero errors and 100% adherence to compliance, as well as, removing your dependency on a single internal person to ensure your employees get paid compliantly each month.
  • Data security and compliance – Local and regional data privacy laws are constantly changing and evolving and most businesses will struggle to keep up with changes in Asia in particular due to the sheer number of countries and different privacy requirements. Leveraging a payroll services company will enable you to stay compliant with local privacy laws by leveraging their hosting infrastructure and policies and practices (e.g. ISO 27001, data retention, etc.)
  • A better HR experience for employees – Payroll providers that use cutting-edge technology can give your employees a better HR experience by enabling employees to more easily to their payslips, leave and other benefits, all while securely handling their data.
  • Future proof solution – A good payroll provider’s system will be highly integrable with your other HR, Finance and Office systems and enable you to have a future proof and scalable payroll solution that doesn’t need to be replaced in 3-5 years time. Checking whether your payroll provider integrates with common HCMs including Workday, SuccessFactors, Oracle, etc. is a great question to prevent issues further down the line.

Questions to ask when building the business case:

As you weigh your options, some questions you should ask include:

  • What are our current challenges with payroll?
  • Will the current payroll solution be able to scale with our business?
  • What is our current and future system landscape?
  • Is our retention of employees personal data compliant with the latest regulations?
  • What are our payroll controls like? Will they pass internal audit?
  • Would everyone get paid if our current payroll person left?
  • What keeps us awake at night?

Knowing your total cost of ownership and coming up with a business case can give you more clarity on whether in-house or outsourcing of payroll makes more business sense. Each business is different and has varied needs, but ultimately, the decision you make should be one that can benefit your company in the long run, all while saving costs and without stinging on quality.

If you think outsourcing your payroll is more suited for your business, Links has been a leading HR service provider in Asia for 20 years. If you’re in need of a payroll outsourcing service that is 100% in-country and is tailored to your specific business needs, contact us today and we’ll be in touch with you!

Links International is an industry leader in innovative HR outsourcing with services such as payroll outsourcingvisa applicationPEO/EOR Secondmentoutplacementrecruitment and more! Contact us for more information on how we can help leverage your HR function.