No in-house payroll team is safe anymore. The ever present reality is that if your organisation hasn’t already looked into the viability of outsourcing payroll production, in an attempt to realise significant cost and efficiency benefits, it is only a matter of time until it does.
Payroll BPO is a Global Competitive Market
At the local level you compete against small business operators claiming to be the most experienced outsourced provider in the market and there are bookkeeping and accounting firms, payroll associations and HRIS software providers all supplying payroll BPO services. Then there are those businesses whose core business is Payroll Business Process Outsourcing (BPO), who vary in size and capacity enormously. The global market has added extra dimension to the BPO market, creating massive competition in cost competitiveness.
All BPO’s are Flogging the Same Horse
Find me a Payroll BPO who is not selling the promises of:
- The realisation of efficiencies and time savings
- Reduced production costs and overheads
- Continuity, Risk Management and Total Compliance
- Superior Speed, Technical Expertise
- Greater operational control for the business
- Technological Superiority
- Reduced Recruitment Costs and Staffing Flexibility
- The ability for your business to concentrate on it’s your core business
Can BPO’s Really Achieve the Miraculous?
The ability of any BPO in the marketplace to achieve this remarkable list of business improvements relies on many interconnected factors… many of which aren’t fully understood by those in the deciding seat. It is important to understand what real differences exist between in-house and outsourced payroll functions and whether outsourcing is really the miracle it’s sold as.
Here are just a few areas that require thorough analysis in the decision making process, rather than blind belief:
HRIS System Capabilities
The quality and capabilities of a BPO’s HRIS system will depend on the size of the BPO business. The corporate payroller who decided to start a payroll outsourcing business will be utilising an off the shelf accounting package or a lower cost cloud based system. National and global BPO’s will be building robust, client tested systems and will have more experience in implementations, which should guarantee a smoother transition… unless that system needs to be customised heavily to achieve your requirements, which can lead to untested and unparalleled disaster.
A true understanding of the capabilities and the shortcomings of the systems used by BPO’s will enable you to make a real comparison between your in-house system and the BPO offerings.
Business Processes
BPO’s would not survive without solid business processes and strict deadlines. When working with a BPO you will be afforded windows of time for processing and queries and your own business systems must be advanced enough to succeed in your business relationship and to get your payroll delivered on time, every time.
If your in-house system is in chaos due to data integrity issues, receipt of late inputs and misconfiguration of your current payroll system, you will not realise some magical transformation by simply outsourcing this mess to a BPO. Garbage in will always equate to garbage out.
Economies of Scale
The whole basis of achieving economies of scale is to define the one process that fits all, allowing for only slight deviations for individual business requirements. If your business can fit itself into the BPO’s processes, all is well, but if your business requires deviations to the BPO’s standard business processes and has a list of required value added services, the cost of the service rises proportionately.
Cost Savings
I’ve managed two outsourcing services and it has always bewildered me why people buy in to this. Cost savings are achieved by any payroll service, in-house or outsourced, by minimizing the time it takes to produce a payroll and the ancillary costs associated with payroll production.
If an in-house service wants to ensure their longevity, then my advice would be to get your costs down to bare minimum by implementing automations, reducing paper and payslip costs, maximizing your HRIS system and establishing if the current wages cost of the payroll team can realistically be reduced. The people in your organisation who will be, or who currently are, looking at outsourced options, will see cost as a major incentive.
All BPO’s have a stock standard service that basically includes accepting an upload file or your business entering the data into their system; performing the payroll calculations and producing the stock standard reports. If this is all you want from payroll, then by all means jump in and realise those cost savings. If however, you want a little extra here and there, grab your wallet and watch those cost savings begin to diminish.
Let You Get On With Managing Your Business
This selling point is touted by every BPO provider globally, but I believe it’s a myth as the business only outsources a portion of the total end to end process. Someone at the business still needs to create and manage the inputs; check and authorise the payroll reports; attend to the employee, management and third party enquiries; reconcile the payroll; perform the management and statutory reporting functions; and above all else ensure the compliance of the data and the process.
Additional Charges for Out of Scope Functions
Want a report that’s not in scope? Want to change the pay rates due to an award change or salary increase? Want to retrieve historical data from two years ago? It can be quite alarming, once the contract is signed by a business owner or manager, who may have little to no concept of the requirements of payroll, just how much additional information needs to be retrieved from the HRIS system. Much of this will be out of scope and will cost the business, either in the charges for the reporting or for the time it takes in-house to devise a workaround.
Superior Technical Expertise
This one always gets me… how can this sweeping statement be made by some BPO’s when your organisation may already employ a perfectly competent payroll person, or even a whole team of them.
Some larger BPO’s may in fact employ specialists in employment law, or IT and so on, but that may not necessarily translate well into the product or service the BPO customer buys. Before a business buys in to the guru status, it should understand exactly how much specialist knowledge exists in its own business via its payroll team members and establish how the gurus will provide an actual realisable benefit to their payroll production, if they were to outsource the payroll.
Total Compliance
The way the compliance dream is sold to businesses concerns me, as it appears to the buyer that simply by outsourcing your payroll, you are guaranteed that every facet of your payroll all of a sudden becomes compliant, and you needn’t worry your little head about it ever again. This is the farthest thing from the truth.
When you hand over the control of your organisations greatest expense and probably most organisations greatest compliance nightmare, you don’t cease to be liable… you don’t cease to monitor and examine… and more importantly, you should never cease to control.
The simplest configuration error, or the insufficiently tested customisation can wreak havoc on pay rates, tax, superannuation, salary packaging…everything. Compliance in every facet and down to the tiniest detail, remains at all times the business’s responsibility, not the BPO’s. Put simply, don’t buy in to the total compliance sales pitch.
Offering of an End to End Payroll Service
Hmmm… by whose definition? I’ve always understood end to end payroll to be all of the processes from the receipt of new employee documentation and employee timesheets, through to the completion of all associated company and statutory reporting, and including all employee, management and third party enquiries and requests in between.
I’ve not seen a BPO yet that encompasses what my definition of end to end payroll is. Nor have I witnessed a BPO yet that doesn’t require a designated person on the ground in the business to compile all of the data and be responsible for employee queries.
Risk Management
There are so many aspects to the risk management and mitigation of payroll that would be hard to fit into a paragraph, but a few of the main concerns to be addressed for those contemplating outsourcing are:
- Disaster Recovery Plans and IT Risk Management
- Risks to confidential employee and business data and bank accounts
- Risk of BPO business failure/collapse
- Fraud and Corruption Risks
- Payroll Controls (including authorisations and error prevention and capture)
- Compliance Risk
- Quality Control Frameworks
- Country Specific Risks
One More Reason Stakeholders Seek Alternative Solutions
Noise. If your payroll service rings so loud in the ears of the stakeholders, consider yourself a branded target for outsourcing. If you have a high error rate and there are constant complaints making their way to the leaders of the business, get your error rates sorted very quickly and eliminate the noise.
Understand Your Competition
The point has already been made… every in-house payroll service is in competition with the sizeable BPO market. In any business, you must understand… truly understand… who and what your competition is and what your competitors are offering, in order to continue to compete against them.
In-house Payroll Managers who are blind or oblivious to this, need to wake up. BPO’s are knocking incessantly on the doors of the decision makers in your business, trying to get their foot in the door.
Now that you understand more about the BPO Market and how the business you work for is on the prospect list of a gazillion BPO providers, you have two choices… start looking for a job in a BPO or start ensuring your in-house payroll service remains a viable business option for your organisation.
Differentiation is One of the Keys to In-House Survival
For any business to outshine its competition, it needs to identify or create differentiation between them and all the other operators in the market. Their customers must be able to clearly see the points of difference and those points of difference had better be ones that draw customers in, rather than turn them away. Your in-house payroll service is no different.
Outsourced service providers all over the world are professing how amazingly more cost effective your organisation’s payroll process will be. They are claiming that their world standard business processes will not only enable outstanding efficiencies, but reap the rewards of economies of scale and all but ensure the organisation’s payroll compliance.
Do yourself and your payroll team a favour and start raising the bar on your service, analysing and minimising your costs, elevating your team’s capabilities and eliminating any “noise”… and start today!
If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.
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