In the realm of small business operations, numerous tasks must be efficiently managed to ensure a productive workforce. From meeting employee expectations to handling paperwork, each aspect requires attention. Even seemingly straightforward tasks like payroll processing can burden a small business in terms of time, finances, and resources. By outsourcing functions like payroll, businesses can eliminate distractions and redirect their efforts towards strategic endeavours.


What is Outsourced Payroll?

When you choose to outsource payroll for your small business, highly skilled professionals handle the entire payroll process, freeing up your valuable time. These experts become an integral part of your business, taking charge of payroll processing, tax deduction calculations, government remittance deadlines, year-end preparations, and addressing employee inquiries regarding pay. As the employer, you simply need to provide accurate employee information and hours worked. Before processing, you also have the opportunity to review payroll expenses for the pay period and access insightful reports that shed light on labour expenditures.


What are the benefits of outsourcing payroll?

Outsourcing payroll can offer several benefits for small businesses, but it can also raise some concerns for business owners. It’s important to weigh up the positives and negatives of payroll outsourcing, as well as which outsourcing provider is best for your business.

1. Time and Cost Savings: Payroll processing can be complex and time-consuming, especially for small or new businesses with limited resources. Outsourcing payroll allows small businesses to focus on their core activities while leaving the payroll processing to the experts. It saves time, reduces administration, and frees up resources to concentrate on business growth. Outsourcing payroll can be less expensive than hiring a dedicated payroll specialist with the knowledge and expertise to ensure your payroll is compliant and accurate.

2. Compliance and Accuracy: Payroll processing involves complex tax regulations, deductions, and reporting requirements. Outsourcing to a professional payroll company ensures a specialist with experience with payroll compliance and tax laws will be taking care of your payroll, reducing the risk of errors. Outsourcing companies stay up to date with changing regulations, minimising the chances of penalties or fines due to non-compliance.

3. Expertise and Access to Technology: Payroll service providers specialise in payroll processing and possess the necessary expertise to handle various payroll-related tasks efficiently. They have access to advanced payroll software and systems, providing accurate calculations, legislative filing and reporting, and other essential functionalities.

4. Confidentiality and Security: Payroll outsourcing companies prioritise data security and employ robust measures to safeguard sensitive employee information. They implement encryption, secure servers, and strict access controls to protect data from unauthorised access or breaches, ensuring your data stays confidential.


What are the drawbacks of outsourcing payroll?

1. Loss of Control: When outsourcing payroll, you entrust a third-party company with sensitive payroll information. Some business owners may feel a loss of control or visibility over their internal processes and worry about potential errors or delays in processing if the outsourcing company is not reliable.

2. Communication Challenges: Outsourcing payroll may introduce communication challenges, particularly if the service provider is located in a different time zone or if there are language barriers. Timely communication is crucial for resolving payroll issues or addressing specific requirements, so when evaluating outsourcing companies, be sure to ask about their communication methods.

3. Cost Considerations: While outsourcing payroll can lead to cost savings, it’s essential to carefully evaluate the pricing structure of payroll service providers against your budget and cash flow. Some companies charge additional fees for specific services or have complex pricing models. Small businesses should assess the costs and compare them to the benefits gained to ensure outsourcing is financially viable.


How do you select a reputable Payroll Outsourcing provider

1. Reputation and Experience: Choose a payroll service provider with a solid reputation and a track record of serving small businesses, or businesses in your industry. Look for reviews, testimonials, and case studies to assess their credibility and experience.

2. Services Offered: Evaluate the range of services provided by the outsourcing company, ensuring they can handle your specific payroll needs. This may include superannuation processing, initiating payments to employees on your behalf or off-cycle pay runs. Some outsourcing companies also offer services outside of payroll, such as HR outsourcing and legal services which may also be helpful to your small business.

3. Security Measures: Payroll data security is crucial. Inquire about the security protocols and measures implemented by the payroll company to protect sensitive employee information. Verify their where data is stored, backup procedures, and compliance with data privacy regulations.

4. Customer Support: Ask questions about the level and types of customer support provided by the outsourcing company. Check their time-zone, availability, customer service agreement, and the channels through which you can reach them. Reliable customer support is important when payroll issues or questions arise.

5. Scalability: Consider your business’s growth potential and evaluate if the payroll outsourcing company can accommodate your expanding needs. Ensure they can handle increased employee counts or changes in your payroll structure that may arise in future.


What are the considerations for evaluating pricing and services?

1. Pricing Structure: Payroll outsourcing companies may charge based on various factors, such as the number of employees, frequency of pay runs, additional services required, or number of users with access to the payroll software. Understand their pricing structure to decide if it aligns with your budget and predicted cash flow.

2. Hidden Costs: Inquire about any additional costs that may not be immediately apparent. For example, some companies charge extra for generating reports, end of financial year preparation, or handling compliance-related tasks. Clarify all potential expenses to avoid surprises later.

3. Service Level Agreements (SLAs): Review the SLAs provided by the payroll company. Understand their commitments regarding processing timelines, accuracy agreements, and query response timeframes. SLAs provide clarity on the level of service you can expect.

4. Integration Capabilities: If you use other software systems for HR or accounting, it can be beneficial if the payroll software the outsourcing company utilises can integrate with those systems. Seamless integration can optimise processes and reduce manual data entry.

5. Flexibility and Customisation: Assess if the outsourcing company can accommodate your specific payroll needs and customisation requirements. For example, if you have salary packaging deductions, employees across multiple roles or an Employment Agreement, ensure the provider can handle them accurately.


Bottom Line

By considering these factors, small businesses can make informed decisions when selecting a reputable payroll outsourcing company, ensuring they receive quality services at a price that work within your business’ budget. A solid understanding of payroll outsourcing’s pros and cons, along with accurate information on existing payroll management costs, can offer helpful guidance.

About Employment Innovations

Employment Innovations is one of Australia’s leading providers of employment services designed to increase productivity and ensure compliance. Its services and solutions include all the tools that every Australian small to medium sized employer needs – including workplace advice, workplace safety, legal services, payroll solutions, migration, human resource management and HR software.



The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact Employment Innovations for advice.