Payroll outsourcing refers to an arrangement where an organization uses an external service provider to manage its payroll tasks.
In the modern business world, outsourcing of support functions is becoming more and more common. Human resource and payroll functions are also one of them. Due to advancement in the information technology and smooth flow of information via internet, many companies prefer to outsource their support functions to firms specializing in these functions.
When companies outsource their HR and payroll function, they can customize their arrangement with the service provider. They can either fully outsource the HR function, or customize and arrange a hybrid function. For instance, a company may outsource the payroll function but the other responsibilities of the HR function such as recruitment, employee appraisals, handling promotion cases, taking disciplinary actions etc.
Payroll function is relatively monotonous, and companies can afford to get this done by specialist firms by giving them instructions about the details of employees and their salary arrangements. A typical payroll outsourcing arrangement may involve the following responsibilities given to the specialist firms providing the services.
- Preparing the monthly payrolls considering the gross salaries, allowances, and other benefits of employees as per their employment agreements.
- Calculating the income tax deductions as per income tax laws of the country.
- Calculating net payments of the payroll after accounting for deductions such as income tax deductions, any adjustment of advances given to employees etc.
- Preparing the paychecks or depositing the net payable salaries and wages of employees to their bank accounts.
- Preparing and filing the income tax forms and reports with the government’s revenue authorities.
- Depositing income tax deducted from the salaries into the government treasury within the stipulated deadlines.
Benefits of outsourcing payroll function
Following are some possible benefits of outsourcing payroll function:
- Outsourcing may be a cheaper option compared to running an in-house payroll department.
- Engaging specialist firms ensures compliance with the laws and regulations applicable to the employer.
- Outsourcing support functions can spare the time of top management to focus on core business issues.