Three disadvantages of outsourced payroll: why you need an HRMS instead
If you’re looking to outsource your payroll, it is important to be fully prepared to handle the disadvantages of the process in order to minimize their impact.
Dan Madden, Marketing Director at citrusHR, shared his views on outsourcing:
“Outsourcing payroll can cause all sorts of problems, particularly with regards to keeping all the information about your employees up to date. It’s all too easy to forget to send across information of an agreed pay rise, expenses due or a changed tax code, resulting in disgruntled employees and lots of time lost to resolving the error. The fewer systems and databases you rely on, the less chance for discrepancies between them all, which is why incorporating payroll within your HRMS can prove so beneficial.”
Here are the most frequently highlighted disadvantages of outsourcing payroll that can impact your bottom line and employee satisfaction.
1. Loss of control
When you enter into a contract with an outsourced payroll vendor you are under their terms and conditions such as how they store your data and the services that they will provide to you.
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Your company is depending upon them to provide the expected level of security to your sensitive employee data and to perform staff background checks at an appropriate level. As the vendor is in a different location it can be unnerving when you’d like to just connect with a local colleague or when you feel that the vendor is not part of your team.
When new legislation requires new fields or calculations, you are often under the vendor’s timing as to when these changes can be ready for testing and production which may impact your internal projects.
2. Lack of company identity and familiarity
An outsourced provider will often be servicing a number of companies via a call center in a lower cost country. Service can sometimes be uneven, depending on the agent answering the call. There is no shared company culture and employees can sometimes feel disconnected during the experience, especially if it’s a different agent answering the phone each time.
It can be frustrating when something is truly wrong and there is no easy escalation path, especially when one used to exist in a former non-outsourced environment.
If your company has employee self-service, it can be confusing to an employee when the HRMS self-service has one look and feel while transactions are conducted differently in your outsourced payroll system.
3. Additional costs
Outsourced vendors often have process efficiencies, but it’s critical that you look at the total cost picture, not just the per payslip measure. Are you charged extra for out of hours emergency support? How are minor enhancements or data loads covered in the support model?
I’ve recently seen a case where a company was looking to integrate payroll data back into a niche compensation system. Under the outsourced vendor’s contract there was a cost to each report manually created as well as an on-going cost to produce an integration file. Ultimately the comp team did not proceed due to these additional budget costs.
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