In 2018, research by the Australian Payroll Association found that 58% of businesses who had chosen to outsource their payroll would, in hindsight, not make the same decision again.
The number of Australian companies outsourcing their payroll is growing fast. According to the same report, in 2018, over 75% chose to keep payroll in-house, but in 2019, one in three were using external payroll services. Yet outsourcing payroll doesn’t always offer the best return on investment, nor does it guarantee compliance.
Is outsourcing payroll the right decision for you? Or would refining your time and attendance practices allow you to stay compliant and save time and money while keeping payroll in-house? What we have found is that for organisations with large shift dependent workforces that the core of the payroll issues are not whether it is outsourced or inhouse but rather the quality of the payroll feeds. Let’s take a look at the facts, so you can make the best decision for your company.
Why Some Companies Outsource Their Payroll
As news story after news story breaks about high-profile companies caught committing (often unintentional) wage theft, it’s no surprise that many Australian companies are feeling unnerved. Even companies that have paid their workers the correct amounts have received hefty fines as a result of payslip errors and poor record-keeping.
Businesses with every intention of following the law can find themselves slipping up: in fact, one in three payroll managers makes mistakes on a monthly basis. With this in mind, it’s understandable that companies are turning to outsourced payroll solutions. The promise of awards and payroll compliance is compelling.
Presumed cost-effectiveness, time savings and reduced stress can also make outsourcing payroll seem attractive. Payroll providers often promise to reduce workload and overall costs, and for businesses with an eye on efficiency as well as compliance, this can be a strong selling point.
The Downsides of Outsourcing Payroll
Outsourcing payroll can seem like the ideal solution – and for some companies, it is. Yet it does not always live up to expectations.
Sometimes, outsourcing payroll can prove expensive. According to a 2019 survey of nearly 2,000 organisations by the Australian Payroll Association, only companies with 50–199 employees saw any savings as a result of outsourcing. Among companies with 200–499 employees – the biggest adopters of outsourced payroll – the cost per payslip almost doubled from $18.27 in-house to $32.73.
Outsourcing won’t necessarily save you as much time as you had hoped, either. In 2018, three out of every five businesses that used external payroll processing providers felt that they still spent too much time on it.
Moreover, it does not guarantee a lack of mistakes. Unlike your in-house HR and Finance teams, your payroll provider may be less likely to notice errors in timesheets and records. Unless you are confident in the accuracy of the information you provide, you cannot expect an error-free payroll.
While outsourcing payroll can work well for some companies, it’s unwise to assume that it is always the best solution. Sometimes, improving your in-house systems can yield even better results and at a lower cost.
How to Keep Payroll Inhouse Yet Remain Compliant
Most payroll errors have their roots in poor record-keeping, from employee onboarding through to the processing of individual timesheets.
Wrongly classifying workers during the onboarding phase can lead to award non-compliance and incorrect wage calculations. Simplifying the process and keeping HR involved, however, will help ensure workers are correctly classified.
Accurate time and attendance tracking can also cut down on errors. If you’re still relying on pen-and-paper timesheets or Excel calculations, it’s easy for mistakes to slip through: a staff member enters the wrong time, HR reads the wrong column, or someone’s ‘7’ looks like a ‘1’.
Meanwhile, electronic attendance systems create infallible records. The Humanforce Mobile App, for example, can allow your staff to clock in and out as soon as they are on the premises. You can relax, knowing that you’ll always have the correct time and attendance data once payroll processing begins.
In addition, with a system like Humanforce, you can integrate modern awards information to ensure that the hours worked are correctly logged as regular hours or overtime. Since different awards can have complex overtime, break and allowance requirements, a workforce management software can help you avoid paying workers the wrong rates (plus, you’ll receive an alert if any potential compliance issues arise).
Poor understanding of Australia’s complex modern awards can also cause problems, especially when it comes to calculating ordinary time earnings and superannuations. This is why it is important that up-to-date software is used.
Outdated software is simply not up to the job of calculating payroll in line with Australia’s constantly evolving awards system. Yet in 2019, 83% of organisations were using payroll technology that was developed 20 years ago – or more.
Should You Outsource Your Payroll? It Depends
For some companies, outsourcing payroll will reduce risk and cut costs. Others, however, will see costs rise – and, because their timesheets aren’t accurate, they still won’t have eliminated the risk of noncompliance.
When deciding between the different payroll processing options that are available to your organisation, make sure you understand the full costs that will be assessed to you, and that you’ve taken all possible steps internally to minimise payroll errors. In any case, refining your payroll processes stands to benefit both in-house or external payroll processors.
Whether you eventually decide to outsource your payroll or keep it in-house, better time and attendance tracking through a solution like Humanforce will help you remain compliant, cut down on costs and improve worker satisfaction.
Get in touch today to learn more about how Humanforce – which seamlessly integrates with more than 100 payroll processors – can help you enjoy these and other benefits. Reach out to arrange your free, personalised demo.