Payroll management: outsourcing advantages and disadvantages

 Payroll management is the process through which workers receive their corresponding salary from the company that hires them. It is a simple process but, nevertheless, should take into account different aspects: the own payroll, social security, tax obligations, etc .

 Responsibilities when doing an employer's payroll include:

 ·         Quarterly reporting

      ·         Employee tax withholding

·         Payment   of tax withholdings

·         Management of contributions to employee health and pension plans

·         Handling disability leave evaluations

·         Notification to the General Pension and Social Security Authority of the registration and cancellation of employees in the company

 These tasks are time consuming and can be headaches for business owners , especially when taxes are late.

We consider in this article the advantages and disadvantages of outsourcing payroll administration:

 Advantage

 1. Focus on the business

 Outsourcing your payroll allows you and the rest of your staff to focus on the main operation of the business and dedicate yourself to tasks that add more value to your product or service.

 2. Reduction of administrative tasks

 The payroll process is time consuming. Its outsourcing can make your company more agile by reducing the number of employees required for this type of administration activities.

 3. Cost savings

 If your company has fewer than 20 employees, there is a good chance that you can save money by outsourcing your payroll operations.

 Find out how many hours your employees spend on payroll activities, calculate how much you are spending and compare the number of plans offered by various payroll providers.

 Be sure to factor in the money your business spends on tasks like printing and distributing checks, creating tax documents, and the like. You will probably be surprised by the result.

 4. Prevention of SAT sanctions

 A payroll service provider is often better equipped to calculate deductions accurately and consistently.

 According to the Tax Administration Service, 40% of small companies pay an annual fine of 25 thousand pesos, on average, during filings for late or incorrect payments.

 5. Evaluation of employees in probationary period

 You may enroll probation or training personnel in a system that does not yet represent direct hire, helping to reduce the possibility of prematurely incurring legal or employment obligations.

 6. Deductibility of the payroll service

 If you are looking for savings for your business, you can achieve them without affecting the situation of your employees, since the payroll outsourcing service is fully deductible.

 Disadvantages

 1. Loss of control

 Handing over your payroll operations to a third party removes control over financial information and the confidential data associated with it.

 Also, the data could be less accessible to your company because it is stored on the server of the company that will provide that service.

 And even keeping your data internally confidential could be less risky.

 2. Threat to security and confidentiality

 The life blood of any business is the information that is kept running.

 If payroll, medical records or any other confidential information that you have is passed on to the outsourcing company, there is a risk that confidentiality could be compromised.

 3. Inconsistencies in the quality of work

 Another possible disadvantage is that the company could find inconsistencies in the quality of the work they provide.

 Wages may not be the right amount; taxes not being deducted correctly, among other inconsistencies.

 4. Decreased sense of belonging

 Feeling oblivious to your business may decrease their loyalty and not "put their shirts on" 100 percent, which can affect their productivity.

 5. Increase in turnover

 That same disloyalty can lead to higher staff turnover, raising the costs of hiring and training new employees.

 How to choose Payroll services in UAE?

 First, you must make sure that the service they offer you is legal and that your employees will not be affected by miscalculated wages and benefits.

 To do this, verify that the payroll administration company is registered with the UAE Association of Human Capital Companies. You will be surprised to know that of the approximately 3,000 companies that exist in United Arab Emirates, only 16 have this registry.

 As in everything, the wrong behavior of most of these outsourcing damages the reputation of those who work well, so it is important that:

 Do a preliminary investigation of the provider of the service you hire to know their reputation and what other companies they serve.

Verify the legality of the hiring of personnel that you carry out to ensure that your employees will not be affected in terms of their employment condition and their benefits.

 

Read also: Evaluation of internal control systems

 

A well thought out decision

 

Whether or not to outsource, decisions must be approached through a careful examination of the potential benefits in relation to the organizational impact that will come with the decision. There should be established guidelines for the task that these 'third parties' would have to do and also a list of controls to which they will have to submit regularly.