We asked two HR professionals whether payroll should be managed in-house. Here’s what they had to say:
Yes, says Vaughan Paul (pictured right), vice-president of HR at Optus.
I am a big advocate for internal payroll. For me, it’s just too important to not manage in-house.
Outsourcing can be cost-effective, but the decision needs to be more than a cost-based one. Getting payroll wrong just sends the HR function back to focusing on the basics, which isn’t a place where we want to be. Not to mention the considerable loss of goodwill it would generate if something went wrong.
So it comes down to cost, quality, complexity and perceived value in the business. It’s fair to say a small to mid-size business with low complexity should find advantages in outsourcing rather than employing internal payroll staff where internal competence is low and economies of scale can’t be reached. A larger business, where transaction volumes and complexity are higher, could find internal payroll is more advantageous from a cost and quality point of view.
Risk is also a factor. What are the strategies to manage risk in either model? How would you pay your community if there’s a system/staffing issue that means you miss a pay or get it wrong? Risk is often overlooked, but as an HRD looking at payroll effectiveness, your inability to get the basics right sets how big a mandate you have over the business.
I see payroll as a key requirement to get right, which means being flexible and responsive to our people. Payroll drives a high percentage of questions when we look at HR queries and sets the tone for internal satisfaction with the HR function.
No, says Kay Johnson (pictured left), HR consultant at Tracey Brunstrom & Hammond.
A few years ago I conducted a cost-benefit analysis on retaining payroll in-house or outsourcing. As a result of a restructure of our accounts department, a required extra resource was identified. The purpose of the exercise was to look at how the accounts department could increase efficiency and productivity without increasing its headcount. The current payroll system wasn’t integrated with the accounting system and leave records were maintained manually.
Initially, there were set-up costs, but only in the low thousands. Payroll processing costs per month were approximately $2000 for 100 employees, including in-house data input costs. For us, the external company we selected significantly reduced our payroll cost.
From a risk management perspective, it was secure. Back-up systems were in place and, if payroll data couldn’t be entered for a specific pay period, then payroll would still be processed using data (excluding allowances and expenses) from the previous pay period.
Reports, such as payroll by division, payroll tax reports, superannuation reports, leave reports, etc, were available, which were incredibly useful. In addition, the company was informed of any changes in statutory or legislative requirements.
Overall, it depends on the effectiveness of the in-house payroll system. Is it integrated with the accounting system? Does it generate the reports required for statutory reporting purposes? It is worth conducting a cost-benefit analysis and considering the pros and cons of outsourcing, with clear objectives of what the real purpose of the exercise is, i.e. cost efficiency, downsizing, etc.
What’s your view?
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This article is an edited version. The full article was first published in the December 2014/January 2015 issue of HRMonthly magazine as ‘For or against’. AHRI members receive HRMonthly 11 times per year as part of their membership. Find out more about AHRI membership here.