Through the years, payroll outsourcing has grown in both its scope and influence. Many businesses in Australia, which shunned it decades ago, have embraced the idea now, due to its convenience and the advantages it gives to the general operations of the business.
In 2018, it is estimated that 24.7% of all Australian businesses and 37.8% of Australian SMEs with less than 200 employees are now operating under an outsourced payroll model, up from 21.3% and 28% respectively in 2017*. The advantages of payroll outsourcing are that it lowers risk, whilst maximising ROI, and is now immensely quick and easy to implement.
Symptoms of poor payroll practices
There are typically only 3 things that contribute to errors in the payroll process – people, processes and technology. Highly skilled payroll professionals are very hard to attract and retain in Australia – they are in high demand. Most payroll mistakes are made because the person processing payroll lacks knowledge, skills and training.
Symptoms of poor payroll processes and systems that need improving include:
- Employees and managers complain of errors and delays;
- There is a significant amount of manual work involved;
- Information is not easily accessible, and reporting does not provide any valuable insights; and
- Frequent off-cycle payments are being made to fix errors.
If your payroll processes display any of these symptoms, it may be time to think about outsourcing your payroll.
The 5 main drivers of payroll outsourcing in Australia
Outside of the above, there are 5 main drivers that are contributing to the growing trend in outsourcing the payroll function in Australia:
- Pay compliance;
- Better utilisation of technology
- Risk management
- Save time;
- Save money.
Australia has a complex myriad of laws governing employment at both a State & Territory and federal level that cover minimum pay rates, minimum terms and conditions, leave entitlements, public holidays, termination of employment, workers compensation, privacy, superannuation and taxation (including fringe benefits), jury duty and record keeping – and the payroll function plays a key role in keeping up-to-date with changes in the law and in ensuring ongoing compliance in all these areas.
The Fair Work Act is the primary piece of legislation governing employment in Australia, with Modern Awards stipulating a safety net of pay and conditions in different industries and occupations – and the enforcement of obligations under the Act and Modern Awards is with the Fair Work Ombudsman.
The Fair Work Ombudsman is now targeting directors, HR professionals, payroll officers, accountants and franchisors to make them potentially liable to prosecution in the event of any contraventions of the Fair Work Act by their business or franchisees. Businesses and franchisors are now required to do more to prevent damaging compliance issues arising – such as provisioning payroll and workplace advice or partnering with service providers to ensure pay compliance.
Outsourcing your payroll will give you access to specialised expertise to not only navigate pay compliance queries but also receive advice on best practice approaches in managing your payroll.
Better utilisation of technology
As a business, you may find it easy enough to obtain the latest payroll and HR software, but find it challenging to ensure it is integrated properly to reduce administration, automated to ensure compliance with pay conditions and ATO rules, and optimised for full utilisation of their extensive product features.
Cloud-based systems have made the cost of maintaining in-house systems much less, however, businesses are often finding themselves subscribed to a number of different solutions for accounting, rostering, HR and payroll – or perhaps only using the basic payroll features within their existing accounting suite and therefore not gaining any additional value from product features that exist today in leading payroll and HR software systems.
Any change in technology also adds to implementation and training costs for your staff if running payroll internally – and the resistance to change is also greater.
New features in payroll software today include smart rostering tools, time and attendance with real-time costing against pay conditions (including awards), self-service for managers and employees.
In addition to managing compliance, other risks that need to be managed relate to security, fraud and key person loss.
Payroll fraud costs business a lot of money and can arise in a number of different creative ways such as ghosting, inflating time or rates and redirecting funds. It can commonly occur where there has been a lack of controls in place, such as having more than one person involved in payroll processing and auditing. Small businesses typically do not have the resources for both controls.
How would your business cope if its key person responsible for processing payroll were to leave suddenly? For large scale corporates, although key person risk can be nominally substantial, they are well capitalised to weather such loss. The same cannot be said for SMEs.
Businesses, typically smaller to medium sized, are finding that one of the simplest ways of overcoming these risks is to partner with a payroll outsourcing provider.
Sensitive processes such as payroll management are procedures that add significant weight to a single person or team of people that already has its hands full. Again, this makes the addition of a company which specialises in payroll systems and services that much more logical.
When you outsource payroll, it frees up your time to focus on the other responsibilities that come with running a business.
In addition to the costs associated with maintaining in-house payroll software, you also have the cost of financing in-house payroll resources (salaries and on-costs), ongoing training, administrative overheads and recruitment costs.
The latest payroll benchmarking report discovered that it costs the average business with under 200 employees $36.30 per payslip* to manage payroll in-house. For example, a business with 100 employees paying fortnightly, the average cost of an in-house payroll function is $94,380 per annum.
Small businesses can save up to 75% of their payroll overhead costs** by outsourcing their payroll.
*Payroll Benchmarking Reports 2017 & 2018, Australian Payroll Association
**Comparing the average cost per payslip for a fortnightly in-house payroll function for a business with less than 200 employees (Payroll Benchmarking Report 2018, Australian Payroll Association) with Employment Innovation’s outsourced payroll solution.
Are you ready to outsource your payroll?
Get in touch with payroll experts at Employment Innovations to discuss payroll solutions for your business and we will ensure you are up and running in no time with absolute confidence and peace of mind.
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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, 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.
This article was originally published on 30 January 2019; updates have since been made following the advice of State & Federal government authorities, changes to legislation and/or changes to Employment Innovations’ products & services. Last updated 13 November 2020.