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Entrepreneurs and owners across small businesses typically start with running most functions in-house. It is common to see these businesses hire 1-2 persons within the accounts team, who double up as people who will manage the payroll function. However, as the organization grows, this starts creating multiple challenges. Through this post, based on my experience, I am highlighting the various challenges and the real costs associated with them. I also talk about the approach taken by some of the successful companies.
1) The costs involved in buying, maintaining a system:
Typically, over a period of time, organizations move away from excel sheet based payroll to a more robust and specialized payroll software. There are costs involved in buying the system, and then maintaining it (with upgrades) from time to time.
2) Infrastructure needed :
You need to dedicate infrastructure to run these systems. Besides you need to plan for BCP (Business Continuity plan) and DRP(Disaster Recovery plan) to ensure that you have the back-ups as mandated by the govt. authorities. It is mandatory to produce this data, in case of specific audits on the topic. Organizations may be doing it manually on their own servers, but typically the solution falls short.
3) Manpower costs :
You need specialized people to manage payroll. Errors in payroll, apart from leading to unhappy employees can also invite compliance challenges. The risk is too high for you to assign this work to an inexperienced person. Also employees typically tend to have a lot of queries related to their payroll and tax computation. If they are not handled well, then all of this get stuck at HR level and hinder normal operations for HR.
4) Attrition & Absence :
If the whole payroll is based on just 1-2 employees working on it, any attrition in the function can put you back by several months. Also any absence, especially during critical end of the month periods can lead to delays in payroll, which is not desirable.
5) Integration to peripheral systems :
Most home-grown solutions do not have any ready integration with time & attendance management systems, nor with leave management systems and also with the core accounting system being used. So, in most cases, this data exchange happens manually and can lead to errors. A professional team managing this typically provides easy integration with the leading time & attendance, leave management systems, along with their service.
6) Data security:
Payroll data is sensitive and HR strives to keep it that way. When it is managed in-house, there are a lot of chances of salary data leaking and pulling down motivation, especially of lesser paid employees. This can lead to a lot of rift and pull down employee performance significantly.
Considering all these risks, a lot of successful companies prefer to outsource their payroll to trustworthy reliable vendor. Interestingly, the companies who outsource their payroll spend on an average 18 per cent less than companies who process payroll themselves.
Specialized payroll companies like Finsmart Solutions have been providing solutions in payroll for the last several years and have grown to be the ‘Trusted Growth Partners’ by many. To know more about our solution and how we can help your organization, feel free to get in touch with me on the coordinates below.
Abhishek Shrivastava (Finsmart Solution)
+91 96899 39368