Should You Outsource Payroll

Issue:

Your manufacturing plant doubles its number of employees from 75 to 150 after adding a second shift. The workload of the person who handles your company’s payroll has just doubled as well, and you are considering contracting with an outside vendor to handle the increasing payroll duties. What are some of the advantages and disadvantages of outsourcing your company’s payroll? What criteria should you consider when choosing an outsourcer?

Answer:

There are several factors that might influence a decision to outsource payroll, including the costs associated with doing payroll, the complexity associated with the payroll department, and management’s desire not to keep an “in-house” function that does not relate to its primary business goals. Or, as illustrated in this example, your company may have grown large enough that it has become difficult to process payroll.

Advantages:

Outsourcing your payroll function may have the effect of reducing head count, reducing costs, eliminating hardware and leasing or buying costs, and reducing interfaces with other internal systems. Outsourcing the payroll function can also leave management alone to concentrate on its priority business activities.

Disadvantages:

Disadvantages include a loss of flexibility in using and managing data, a loss of control over the payroll function, a loss of control over costs, lack of an employee technical staff, and the potential lack of responsiveness to the employer’s needs.

Criteria for choosing an outsourcer:

When selecting an outsourcer, consider the following:

• Does the corporate culture of the vendor compliment that of your company?
• What is your impression of the vendor’s employees and workplace?
• Do you have a sense of mutual trust?
• How stable is the outsourcer?
• Is the outsourcer flexible so that it can react quickly to your changing needs?
• Is the outsourcer forthcoming with information?
• Is the outsourcer’s technology adequate?
• How does the outsourcer report mistakes or problems to you?
• Will the outsourcer come to you with innovative ideas and technology options?

SOURCE: CCH Inc. is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online, and via the Internet. For more information and other updates on the latest HR news, check its Web site at http://hr.cch.com/.