6 things to look out for before outsourcing your payroll

Blog3 mins read71 views | Posted on February 1, 2024 | By Aarthi

What does outsourcing in this context even mean? Let me explain with a real world example. Say you move to a different city for work. What do you do for food? You can either eat out everyday or you can hire an in-house cook.

If you are just one person, it might not be expensive to eat outside or subscribe to a food delivery programme. But assume you're a family of 5. Now it makes sense to hire a full-time chef, doesn't it?

Now apply this analogy to your payroll.

Say you've only just started your business and you have 5 people on your payroll. You rationalise that hiring a full time payroll admin for 6 employees is a reach and so you decide to outsource your payroll. It comes at a lower cost than recruiting and training an in-house HR admin for payroll.

You further reason that as your business scales up, you can invest in full time HR personnel for your business. Seems like a pretty sensible approach, right? Well, maybe. There are some things you should consider before outsourcing your payroll. Here are 6 things to look out for before doing so.

1. Data privacy: 

So the firm you're outsourcing to is going to know how much you pay your employees, their different pay grades, roles, designations, etc., Pointing out the obvious here: Do you really want an outsider having access to all that information. Yes, they are professionals and they will have long gone out of work if they were betraying their clients' trust by divulging sensitive data that was entrusted to them. But in this digital age where data security and privacy are of paramount importance, you really need to ask yourself whether the price you're paying is worth it.

2. Compliance:

Assume your business is based out of the US but being a first generation immigrant you have ties to your country of origin and know a great HR service provider there. As professional and cost effective as that business might be, they might not understand the intricacies of the regional tax laws and payroll regulations in the place where you are conducting your business. Although it goes without saying that said-professionals need to equip themselves with the relevant knowledge about payroll laws and features unique to different countries, industries, etc., no one really knows the in and out of your business like your own people. Correct?

3. Cost:

Although it is the number 1 reason businesses outsource any operation, sometimes it can be cheaper to get things done within the company. In addition to cutting down costs, you also get added advantages like privacy, a directly responsible individual within your firm, etc.,

4. Incompatible system integration:

The HR service provider might be using software that is alien to your company. In getting your database system in sync with that of the HR provider's, you might waste a lot of valuable resources.

5. Client Support:

While every business advertises readily available customer support 24 / 7, it might not always deliver on that promise. That must be a risk you feel ready to take.

6. Scalability:

While it is good to adopt a conservative approach while starting out a new venture, it is equally good to be optimistic and plan for all future requirements. This way, you are never caught off-guard by any surprises that come with growth. So if your employee count grows to twice the present number, you would outgrow the extent of services offered by this third party. So you would have to move to a bigger vendor or move operations in-house; both of which cause an unnecessary waste of resources.

While there can be many other pros for outsourcing payroll such as freeing up much-needed time and resources for other core tasks, especially for a small business, it is good to take the above-mentioned points into consideration also to make an informed decision.

This is why we've engineered Zoho Payroll to cover all scenarios; good, bad and ugly so that you're well protected from any issue that might arise due to the aforementioned reasons. Give us a test run and see for yourself



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