It shouldn’t come as a surprise that when you employ someone, you are obliged to pay them.

And you would think that would be a relatively straightforward proposition, but it’s not. Immediately, you have an additional obligation to calculate, withhold and pay taxes and pension contributions. Failure to do so has consequences under law – you are liable for lost taxes and penalties. You could also have problems with your employees if your calculations are inaccurate.

How do employers typically deal with this challenge?

We have come across two common ways of dealing with the challenges of payroll:

  1. Do nothing about it – just pay the agreed contract amount without any consideration for taxes and pension. Typically, the very small employers who do not have accountants and are ignorant of the tax and pension laws take this approach. This only exposes these employers to very serious tax problems in the future.
  2. Use an in-house accountant – those with in-house accountants use them for their accounting and payroll needs.

Of course, it’s always better to choose option 2, but using an in-house accountant comes with its own costs and risk. Some of these include:

  • The use of spreadsheets – most use Excel spreadsheets for calculating payroll. This is not recommended because Excel sheets do not have inbuilt controls and are fraught with errors that are not easily detected.
  • Cost of software and hardware – those using dedicated payroll software have to contend with the cost of the software, hardware and training. These are not one-off costs; they must pay for annual updates and additional training. For a small business, these costs can add up and may not make economic sense for the numbers involved.
  • Knowledge– tax laws keep changing and the accountants must keep up to date with those changes. The small business employer assumes they do, but do they? Chances are they’ll only find out when a tax audit occurs. And by that point, it will probably be too late.

If you’re wondering if there’s a better way – one that is cost effective and protects against the risks outlined above – then you’ll be glad to know there is. So, what is it?

Introducing payroll outsourcing

Payroll outsourcing is the practice in which an individual or a company that specializes in payroll takes on the responsibility for preparing the payroll – a function that has been or is done in-house. Payroll processing involves:

  • The maintenance of employee records;
  • Calculation of employee salaries, benefits and statutory contributions;
  • Payroll distribution;
  • Issuing of payroll-related reports;
  • Filing of all payroll-related statutory returns;
  • Receiving and making salary and statutory payments on behalf of clients.

Payroll administration can be an arduous task for many businesses. And payroll processing is a complicated and potentially risky business operation. Some of the real risks associated with running payroll are:

  • Failure to comply with tax and other laws relating to payroll due to lack of appropriate knowledge. This can subsequently result in penalties for your business.
  • Confidentiality – it is sometimes difficult to maintain complete confidentiality when payrolls are processed internally.
  • Loss or corruption of data.

What’s more, payroll tax laws are constantly changing and failure to comply with these changes can result in an inaccurate payroll and more penalties. Good payroll service providers have in-depth knowledge of payroll laws, and the required systems and skills for the efficient and cost-effective delivery of payroll services.

What are the benefits of outsourcing payroll?

By choosing to delegate your company’s payroll to a specialist firm, you will receive the following benefits:

  • Peace of mind that your payroll complies with the latest tax and payroll-related laws, thereby avoiding the payment of penalties to statutory authorities for late or incorrect tax and other statutory filings;
  • Confidence that there is continuity of payroll process, and that there is no loss of payroll knowledge irrespective of staff turnover;
  • A reduction in back office expenses directly related to payroll processing, as costs associated with internal payroll processing, can be greatly reduced by outsourcing payroll;
  • An increase in productivity by focusing on more valuable, revenue-generating activities.

Opting to work with a payroll outsourcing service provides your business with a quick and error-free payroll process. It saves a lot of time, effort and money for your organization as it sidesteps the need for training, paying, and managing an in-house payroll unit.

As part of the service provided to their clients, quality Payroll Service Providers invest in state-of-the-art systems for storing and protecting data. Payroll outsourcing is a terrific option for every business as Payroll Service Providers often provide a cheaper alternative compared to internal payroll processing departments.

Finally, as payroll experts, a quality Payroll Service Provider can assist you during audits by the various regulators. Outsourcing can save your small business costs and protect it against the real risk of not complying with tax and pension laws.

Prepared by SCG Payroll Solutions

SCG Payroll Solutions, a unit of SCG Chartered Accountants, is a specialist payroll company that, over the last ten (10) years, has provided outsourced payroll to both large and small businesses.