3 Key Considerations For In-House Payroll Processing

When it comes to running a business, there are some business functions that cannot be compromised. One of them is payroll processing. There is nothing more important than ensuring a well-managed payroll system.

Ensuring that payroll is executed well goes beyond utilising a robust payroll software. A poorly managed payroll system can result in hefty payroll mistakes, low productivity levels and poor employee engagement levels.

Why is the decision between in-house or outsourced payroll so important?

Given that a well-managed payroll system is key to a healthy business, the decision then lies in whether the organisation should opt for in-house payroll or leave payroll processing in the hands of an outsourced external provider. There are some pros and cons associated with both options and the final decision ultimately boils down to which option works best for the organisation.

It is fairly common for organisations to make the switch between outsourced payroll to in-house payroll processing, and vice versa. Some of the commonly quoted reasons may include cost, more control over the payroll processes, flexibility and security.

1. Cost efficiency

Payroll is one of the biggest cost centres in any business operations and is also the most critical. Labour cost, be it in-house or external, are simply one part of the entire cost equation. Organisations need to account for paying staff to handle and check payroll, annual payroll software licensing fees, payroll distributions and paying for cloud storage of historical payroll records. All these can add up to a significant amount of the operating costs. It is imperative to weigh the benefits and costs of outsourcing payroll versus processing it in-house, and whether setting up an in-house payroll software system is financially and operationally sustainable in the long run.

2. Compliance

The organisation’s ability to adhere to statutory legislations and labour laws is one of the biggest factors in ensuring accurate and compliant payroll records. A robust and updated payroll software can help organisations to remain compliant with updated payroll regulations by ensuring that the payroll software is regularly updated once there are any changes in labour law or statutory contributions. Concurrently, organisations can opt to avoid the hassle of having to constantly monitor for changes in labour laws by engaging external payroll vendors to process payroll in accordance with the respective countries’ payroll regulations.

Key considerations when switching to in-house payroll processing

1. Payroll staff capabilities

Switching from outsourcing payroll to processing it in-house is a herculean task. Not only does this mean that payroll staff have to be inherently aware of the end to end payroll process, they also need to familiarise themselves with the nuances of the respective countries labour laws and regulations.

2. Migration process

Aside from ensuring internal staff’s capabilities, organisations also need to migrate historical payroll records from the external vendor back in-house, while ensuring the data is formatted in accordance with the in-house payroll software. The entire migration can be an arduous and long process, whereby multiple steps are involved – integrating the Human Resource Management System (HRMS) with existing systems, setting up payroll Standard Operating Policies (SOPs), linkage to organisation’s corporate bank accounts, and setting up appropriate levels of employee access to payroll data. Once all these integration and migration steps are completed, organisations may also need to roll out a communication and change management plan to educate employees on the new payroll process and system.

3. Fraud

In-house payroll processing makes it easier for fraudulent activities to occur given that payroll data and confidential employee records are stored within the organisation itself. There may also be instances in which fraudulent activities occur unknowingly when payroll staff are executing daily payroll operations. Some of the common instances include misclassification of employees or poor records management, leading to inaccuracies in payroll data.

There is no single solution for organisation when it comes to payroll processing. Organisations may choose to outsource their payroll, only to switch back to in-house payroll processing at a certain juncture. The key consideration is to weigh the benefits as well as the opportunity costs between outsourced payroll versus in-house payroll processing. However, when considering both options, it is perhaps helpful for organisations to consider which payroll processing option is sustainable in the long run.