Outsourcing has today gained momentum and managers need to understand what functions they can safely outsource free from the concerns of losing data, customers or business functionality. Payroll is one niche market in South Africa where the outsourcing model has been rapidly adopted.
AMR Research and CFO magazine in a joint survey substantiate the growth of outsourcing of the payroll function. Findings include the fact that companies are aggressively doing business process outsourcing in non-core areas to save money or gain expertise. The key to ensuring the outsourced function creates value for the organisation is effectively using all the benefits outsourcing offers – and making use of a reputable outsource provider with a good track record.
Outsourcing provides businesses with a means to complete a function within the business without outlaying an investment such as staff, ICT hardware/software, office space and other peripheral requirements. In addition, the service provider’s fee becomes a business expense rather than a capital outlay, freeing up often hard pressed Capex budgets. In addition, where a particular function is outsourced, staff can be allocated to focus on core business, thus strengthening efficiencies within the operation.
However, outsourcing provides more than just a financial benefit. It also offers improvements in other areas, especially in a payroll environment. It is important to consider the five C’s: compliance, corporate governance, confidentiality, control and cost effectiveness.
Corporate governance has come to the fore as a business consideration and adherence to legislation is paramount with severe penalties resulting where it is disregarded. Confidentiality is also particularly relevant as there is a high degree of sensitivity within organisations regarding employee information. Confidentiality is much easier to achieve where an outsourced service provider is employed.
In addition, with an integrated enterprise HR and payroll solution, which is systems and rules based, a company can improve accuracy. The introduction of best practice controls further enhances the integrity of the system and simplifies reporting to the board. Improved efficiencies within an organisation are important in that they positively impact the bottom line.
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Businesses have a multitude of disciplines and areas that they are required to be proficient in. It is therefore difficult for companies to have experts in all of these areas. Paying employees accurately and on time is one of the primary responsibilities of any employer. The advantage that an outsourced payroll/HR company delivers is that their staff specialise in HR and payroll issues such as tax, thus ensuring accuracy. Delivery of a professional service means outsourced payroll service providers have to ensure their payroll administrators are of the highest calibre.
Although there are a number of anecdotes on how outsourced services decay and response times slow, it is important for the manager to also focus on how outsourcing can optimise processes. An outsourced service provider is measured on the effectiveness and accuracy of its service and its processes are thus designed to meet high standards. As these outsourced services are usually highly focused, the standards and processes employed are regarded as ‘best practice’, something that is difficult to achieve in an organisation that has a multitude of aspects and areas of business to consider.
From a payroll perspective, an outsourced service reduces the risk of ‘ghost’ employees, an age old trick that siphons money out of the business through the employment of fictitious employees. Ghost employees are most easily created with in-house systems that do not feature the stringent controls or procedures that should be defined and applied by a company.
For more information contact Sharon Tayfield, operations director, Praxima Africa Payroll Systems, +27 (0)11 314 5661, email@example.com