Outsourcing payroll
May/June 2001
Don't
DIY - Outsource
By getting someone else to look after your payroll, you'll
have more time to concentrate on your core business
Even for small companies, with a staff of less than five
people, organising the weekly pay cheques can be a complicated and time-consuming
task.
That time would be better spent on your core business.
As the operator of a service station or a convenience store, your core
business is providing services and goods to your customers, not wasting
time and money with the complexities of the payroll system.
Rather than do the payroll yourself, or hire a payroll
officer or accountant to look after the payroll for you, there's an
alternative called outsourcing. It is cost effective, simple, tailored
to suit your business and frees-up your time.
What is outsourcing?
Outsourcing has been around for a long time. It is basically the contracting
out of a company's non-core, non-revenue producing activities to specialists.
Examples of outsourcing can be found in many industries.
For example, car manufacturers don't make the entire car - they outsource
many of the parts, components, and assemblies to companies that specialise
in certain areas. The headlamps may be made by Hella, the windows by
Pilkington and the shock absorbers by Koni. In extreme cases, some car
manufacturers even source major components such as engines, brakes and
suspensions from other companies.
Likewise, the oil companies don't drill for all of their own oil. They
outsource the drilling to oil-field service companies.
Outsourcing differs from contracting in that it is a strategic
management tool that involves restructuring a company around what it
does best - its core business.
Business Process Outsourcing (BPO) includes outsourcing
related to accounting, human resources, benefits, finance functions
and, of course, payroll.
According to The Outsourcing Institute, the top-ten reasons
why companies outsource are:
1. Reduce and control operating
costs
2. Improve company focus
3. Gain access to world-class capabilities
4. Free internal resources for other
purposes
5. Gain access to resources that
are not available internally
6. Accelerate re-engineering benefits
7. Handle functions that are difficult
to manage or are out of control
8. Make capital funds available
9. Share risks
10. Bring in a cash infusion
While not all of these points are applicable to the service
station or convenience store operator, many of them are. Of course you
want to reduce and control your operating costs and improve your company
focus. Gaining access to world-class capabilities and freeing internal
resources can't hurt either.
The benefits of outsourcing
Outsourcing your payroll will not only save you time and headaches,
it will also result in other benefits including cost savings, freeing-up
capital and access to the latest technologies and expertise in payroll
management.
Outsourcing your payroll is less expensive than you might
think and can deliver significant cost savings. Not only that, but the
costs of outsourcing are clearly quantifiable whereas the internal costs
of payroll processing are often unknown and are rarely monitored.
The capital investment required to process payroll in-house
is often greater than required for outsourcing. The savings you make
can be invested elsewhere in your business where it will return profits.
Should your company expand, if you take over another site
for example, your increased payroll management can easily be handled
without having to invest in more equipment or people.
Outsourcing payroll can give you access to the best solutions
and latest technology without the need for software upgrades or direct
investment. As well as this, you gain access to payroll specialists
that will ensure you meet your statutory obligations.
A complex business
As anyone who has tried it before will know, doing the payroll in-house,
even in a small business, can be a very complex and time consuming process.
In addition to calculating employees' gross pay, tax and
net pay under a range of varied structures, there are a number of other
things that a payroll officer needs to stay on top of. These include:
ª Superannuation
guarantee for each employee
ªCalculation
of entitlements such as sick, annual and long-service leave for each
employee
ª Electronic transfer of funds to each
employee's bank account
ª
Reporting of group tax and the production of payment summaries (previously
group certificates)
ª Payroll tax reporting
There are plenty of payroll companies in Australia that
can perform all of these tasks for you.
According to ADP Employer Services, a leading payroll
outsource company, you should ask the following questions when considering
outsourcing:
ªHow
can internal processes be improved? ª
Identify non-productive processes and the time that is spent on these
activities. Could this time be directed into other more profitable areas
of your business?
ª
What will be achieved by outsourcing?
ª
How will outsourcing affect the performance of the business in practical
terms?
ª
Are the cost benefits both long-term and short-term?
ª
How does outsourcing compare using internal resources (taking into consideration
factors such as employee-related costs, technology, training and administrative
support).
ªWhat
risks are increased and what risks are decreased?
ªWill
important information still be at management's fingertips? Will outsourcing
improve disaster-recovery capabilities?
ª
What impact will outsourcing have on internal resources?
ªWill
employees' duties change? How will existing resources be redirected?
ªWhat
will the financial arrangements be? ªHow
is the fee structured? What does it cover?
PayLine is an outsourced payroll service that has been
developed by ADP Employer Services, tailored specifically for businesses
with between 1 and 300 employees.
PayLine provides a professional, personalised payroll
service that significantly reduces your time spent on payroll matters,
and lets you concentrate on running a successful business.
The benefits of handing over the administration of your
payroll to a specialist outsourced payroll provider like PayLine become
even more significant when you consider payroll's obvious complexities
and the fact that it is affected by a myriad of complex taxation, superannuation
and industrial relations laws.
Whether your business requires only a basic payroll management system
or one offering more complex features such as costing details or rate
history, the choice is up to you. PayLine can be tailored to suit your
individual business needs.
Features of the PayLine system include:
ª Individual
attention - Each client is assigned a Client Service Consultant who
is responsible for processing payrolls every pay period.
ª
Support Hotline - PayLine's Solution Centre Consultants are only a local
phone call away to help clients with any payroll-related questions or
changes they may wish to make to their payroll particulars.
ª Electronic Payment Services - Superannuation,
PAYG withholding tax and other deductions can be calculated and paid
electronically on behalf of the client, thus eliminating late payments.
ª PAYG Payment Summary (formerly Group
Certificates) - PAYG Payment Summaries are printed on your behalf and
Australian Taxation Office (ATO) copies lodged electronically, eliminating
late provision of PAYG Payment Summary.
ªAutomatic
Reporting - Management reports meet statutory compliance, provide labour
cost analysis, detail leave liability and ease the auditing process.
Comprehensive payroll journals are available in case of employee, union
or ATO queries.
The Benefits of such a system include time savings, peace
of mind that payments are accurate and secure, no need to invest in
software upgrades, it's simple and straightforward and can be easily
delegated if staff are ill or resign and it's quick to implement and
set-up.
All you have to do is phone or fax your Client Services
Consultant to advise timesheet information. PayLine then does everything
else. From calculating wages automatically, keeping track of leave history,
entitlements, rostered days off (RDO), allowances, deductions, superannuation,
tax, electronic payment of staff into their bank accounts, and payment
of superannuation and tax.
Another payroll company that specialises in payroll management
services to medium and small businesses is Aussie PAY. It can tailor
a payroll system to your requirements and will assign a dedicated consultant
to manage your payroll and assist with enquiries and payroll issues.
Formed in 1989, Aussie PAY is one of the few payroll service
companies not owned by a financial institution. The structure of the
payrolls Aussie PAY manages varies from classic award structures with
numerous overtime, allowance and penalty payments through to highly
structured executive packages.
Aussie PAY has direct modem access to the banking system
and is able to provide overnight electronic funds transfer payments,
payments of clients' group tax and superannuation obligations. Aussie
PAY also directly interfaces with the Australian Taxation Office to
provide electronic transmission of employee's declaration forms. It
is currently in the process of developing an E- Commerce capability
that will give clients automatic 24-access to their payroll details.
Other alternatives
If you don't wish to completely outsource your payroll to another company,
there is another alternative that will save you time and money.
Some companies offer a payroll management software to
simplify the payroll process.
One such company is called MicrOpay and features of its system include:
ª payroll
processing
ª personnel and leave management
ª labour costing and interface to your
accounting system
ª management reporting
ª
provision for casual employees on various rates of pay
ª provision for rostering and award interpretation
ª calculation of gross wages, tax and
net pay as data is entered
ª allows for payment by cash, direct deposit,
electronic funds transfer or cheque
ªo
makes changes to taxation or superannuation rates immediately within
any pay period
ªlink to most popular word processing
and spreadsheet programs
ªdata
is easily accessible for reporting, analysing and forecasting.
National Payroll Systems offers a service with a dial-up
digital connection or via the internet. Its system is claimed to offer
a short, shallow learning curve so that any staff member can easily
pay employees in the absence of the usual payroll officer. Another advantage
of such a system is that payroll data is kept off site so that it is
secure from access breaches.
Summary
As Pay Office, another Australian payroll management company puts it:
"We Manage Your Payroll, so You can Manage Your Business."
For 99 percent of companies payroll is a function or process
that is not core business, so it makes sense to outsource it to a company
that specialises in payroll.