Six savvy questions to ask before outsourcing payroll

As companies grow, payroll operations tend to become increasingly complex. Employers with remote teams must also navigate cross-border taxes and regulations in order to remain compliant. One popular solution is to outsource these services to a third-party service provider.

Having an effective and efficient payroll process can increase employee satisfaction and retention. Payroll service companies can remove the stress and time burden from employers by calculating pay and withholding necessary taxes.

This article will help you understand the questions you should ask before outsourcing your payroll operations, as well as what benefits you can expect.

What to ask before outsourcing payroll

First, you’ll need to assess if hiring a third-party service provider makes sense for your company. Consider the following questions:

1. How would the business benefit from outsourcing payroll?

Before jumping right in, consider your why. Having a strong understanding of the benefits you are looking to gain can help to anchor your search and implementation process and gain buy-in from stakeholders in your company.

Some small companies’ processes are simple enough that they may not necessarily need to outsource their payroll operations. However, even small companies can benefit from hiring third-party service providers to mitigate legal risk.

Generally, if you find yourself wondering whether you need help with payroll, then chances are, you probably do.

Managing payroll is a complicated legal process. The stakes are high, and failure to remain legally compliant can cost employers greatly in penalties and fees. This becomes especially true when you’re navigating payroll compliance in other countries (but we’ll get into this later). For all these reasons, it’s often best to leave it to the experts.

2. What parts of payroll do we need help with?

Once you’ve determined that hiring a third-party service provider makes sense, you will need to make a list of services that you will need help with. Some payroll providers specialize in one area of service, while others offer a broad range of services and expertise.

This list of services will help you narrow down the best service provider for your company’s needs. You can also use the list of services to save time, so you don’t end up talking to a potential provider only to find that they don’t offer all of the services you need.

Consider what your HR department’s current strengths and weaknesses are. Are there specific tasks that are more challenging to complete or take a significant amount of the team’s bandwidth?

For those looking to hire internationally, third-party providers can also greatly streamline the hiring process.

At this stage of the process, consider both the current and future needs of the company. Taking the time to consider your future needs will ensure that you find a provider that you can establish a long-term relationship with.

3. What kind of employees do I have and where are my employees located?

Your payroll needs will vary based on your company’s employment model. Those with full-time employees will need to account for taxes and benefits while complying with a specific set of (often stricter) regulations. Meanwhile, those with seasonal or contract workers may not need to be so concerned with benefits, but they may need to account for a higher rate of turnover and hiring.

The geographic location of your employees will dictate what regulations your company will be held to. It can be advantageous to select global payroll service providers that specialize in specific regions and have expertise in location-specific regulations.

As with the previous question, it can be beneficial to also consider regions and countries that you could potentially expand hiring to in order to build a long-term relationship.

As your company grows, the cost of maintaining legal compliance across countries increases. Third-party providers with a broader geographic range may have a higher price tag. The bump in price shouldn’t be a deterrent for companies invested in long-term expansion and high levels of service.

4. What does removing in-house payroll mean for business operations?

Consider how the company as a whole can benefit from outsourcing payroll. How much free time can you expect to gain to refocus on core business needs?

Having a clear understanding of what you hope to achieve with the extra time and resources, from the beginning, will ensure that you redirect the team’s time and attention to areas that matter and can help the company in the long run. You can maximize this time by focusing on areas of growth, such as building new recruiting initiatives, building a new team, or expanding professional development opportunities.

5. What is our overall budget for the outsourcing process?

Streamline the selection process by understanding how much money the company is willing to invest in outsourcing. Different companies will have different budgets and budget goals.

For example, while some may look to cut payroll costs—by saving on software, equipment, and other supplies—others are willing to commit a larger budget for the best payroll services. Saving money is an attractive benefit of outsourcing, but should never be at the cost of quality of service. Shop around to find out which provider would be the best investment.

6. What business values, practices, and payroll tech must the service provider have?

Answering this question will help to narrow down the list of service providers even more. The quality of a company’s payroll services directly impacts the employee experience—as anyone who has ever received a late paycheck can attest to. Invest in a provider that will provide a great employee experience.

Also consider how the service provider aligns with your business’ values and processes. Do you value simple, standardized, and efficient processes? Make sure to find a provider that matches your values. Standardization will maximize cost control and minimize confusion for everyone.

Why outsource payroll

There are several financial, legal, and security benefits that companies can expect from outsourcing their payroll operations.

Reduce costs

Employers can often reduce costs by saving time and reducing errors. Payroll involves managing large amounts of data and conducting accurate calculations. This can require a growing in-house payroll team, a costly business expense. By outsourcing payroll, companies can maintain a smaller HR team without sacrificing accuracy and efficiency.

Errors in payroll are costly. Outsourcing can reduce the rate of errors, saving the employer penalty fees and the time cost of fixing mistakes. Professional payroll service providers can also help ensure that the company is complying with regulations, maintaining accurate records, and making the required filings to government and regulatory bodies.  

Small businesses can especially feel the burden of fines and errors. Make sure to partner with a payroll service provider with a high accuracy rate and positive testimonials.

Gain access to the latest payroll technology

Payroll providers invest in technology specifically dedicated to managing private data and completing payroll processes. Softwares that can integrate seamlessly into existing programs will help create a smooth transition for employees and employers alike.

Improve data security

Data breaches can happen when data is mishandled, stolen, or embezzled. Payroll companies can mitigate security risks by leveraging advanced technology with robust data security. While data security can be costly on an individual, in-house scale, it is much cheaper to outsource to a payroll company that specializes in this.

Payroll data is especially sensitive and often includes birthdays, addresses, identification numbers, phone numbers, and bank account details. The payroll management software that third-party providers use is built to safeguard this information.

Outsourcing payroll can be a cost efficient and secure option for any company

It doesn’t matter if you are a scrappy team of entrepreneurs or a large, influential fortune 500—or anywhere in between—companies at every size can benefit from outsourcing their payroll processes. Those with international teams face complex regulatory environments and can benefit greatly from error and risk mitigation. Investing in the right payroll partner can take some effort upfront, but can save an employer significant costs and protect its global reputation.

Looking to outsource payroll to a global payroll provider? Oyster makes multi-country payroll compliance easy. Learn more here.

About Oyster

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.