Payroll Outsourcing: Everything You Need to Know

Payroll outsourcing is a valuable, high-return investment for growing companies, looking to optimise their time and minimise their admin burden. By partnering with an experienced, full-service provider, the key payroll responsibilities that can be taken care of for your business include:

  • Wage calculations for all categories of workers (PAYG and contingent), including benefits and reimbursements
  • Payroll tax calculations
  • Filing mandatory government reports
  • Filing – and sometimes paying – taxes with the ATO
  • Superannuation deductions for workers
  • Establishing payroll records for new employees
  • Ensuring your business is SuperStream and Single Touch Payroll compliant
  • Keeping payroll records for your business

…amongst other services.

The great value in payroll outsourcing is, you can outsource all your requirements, or simply those which are necessary depending on the stage of your business’ life, and its growth rate.

Payroll can become messy and stressful when your business is growing. The compliance requirements alone can be arduous and confusing. So…. today, we’ve put together the ultimate list of everything you need to consider when outsourcing your payroll function.

What is Payroll Outsourcing?

Payroll outsourcing is the process of appointing a third-party partner to ensure your workers are paid accurately, on time and compliantly, every time they get paid.

Payroll outsourcing providers can do everything from calculating pay and deductions to transferring money into your employee’s account and filing associated taxes. Or they might just do part of the job, depending on where your business is at, what it needs and what suits your budget.

third party payroll provider

Payroll Outsourcing: Why Do It?

If you don’t currently have an HR function in your business, or adequate finance or admin staff, outsourcing your payroll function is a great option. The fact is there’s no ‘typical’ business size or structure best suited to payroll outsourcing – it’s valuable for any business.

There are many situations that warrant outsourcing your payroll function. Some of these include:

  • You no longer have the skills or resources to manage your payroll function
  • You can’t keep up with the changing statutory compliance and regulatory requirements of payroll
  • You want to ensure you can access the right expertise to manage all payroll requirements

Other, more strategic factors to consider include:

  • If your business has strategic tasks, requiring the attention of your HR and finance teams
  • If your business needs to put a disaster recovery plan in place, to ensure the continuity of payroll for all workers
  • If you need better, more insightful payroll data, to make strategic business decisions
  • If your business has been affected by recent payroll regulation changes

The other great point is this: payroll providers typically use industry best practice software to automate many payroll tasks. So, the cost of outsourcing can be relatively low.

What Do Payroll Outsourcing Providers Do?

Payroll providers offer different levels of service, which you can nominate based on the needs of your business. I mentioned these before, but they’re worth restating:

  • Wage calculations for all categories of workers (PAYG and contingent), including benefits, expense claims and reimbursements
  • Payroll tax calculations
  • Preparation of payroll tax returns
  • Preparation of activity statements
  • Filing mandatory government reports
  • Filing – and sometimes paying – taxes with the ATO
  • Superannuation deductions for workers
  • Establishing payroll records for new employees
  • Ensuring your business is SuperStream and Single Touch Payroll compliant
  • Keeping payroll records for your business
  • Salary packaging and remuneration services

It’s important to do your research, so you select a professional, reputable and trusted payroll outsourcing partner (more on this below). The best operators will remove the complexity, time and stress of managing your payroll in-house. And crucially, they’ll ensure your company is always compliant with all tax and regulatory obligations, so you’re never exposed to penalties.

payroll outsourcing

Types of Payroll Outsourcing Services

Payroll outsourcing providers come in multiple iterations.

There are accountants or bookkeepers, as well as specialist payroll outsourcing organisations. Some providers are better suited to small, simplistic payroll needs. Others are set up to manage complex requirements, where the reporting obligations are broad, and the workforce is large and multifaceted.

Payroll outsourcing providers also differ in the level of service they offer, and how they provide these services. Broadly, there are two categories:

Full-service payroll provider

A full-service payroll outsourcing provider manages your payroll end-to-end. They just require access to your business and employee data.

Full-service payroll is typically an easier solution as all facets of payroll are taken care of. However, they are more expensive.

The other key element with full-service providers is being able to issue them with quality information and company data. Therefore, you need to have robust information-sharing systems in place, to make the relationship work.

Full-service providers require timely access to timesheets (for hourly or contingent workers) and notice of changes to workers’ employment terms or tax status.

DIY payroll providers

DIY providers tend to offer services on the technical, more complex parts of payroll while leaving the basic admin tasks to you.

For example, you might record time and attendance, and keep employee records. But they’ll calculate all the pay, taxes and other deductions.

And they can help to set up your business with the right software that automates or makes your payroll tasks straightforward.

How To Choose a Good Payroll Service Provider

Selecting the right payroll outsourcing provider is crucial. Below, we’ve provided a list of the key factors for you to consider when assessing payroll providers for your business.

  • Choose the right level of service to suit your needs: Make sure your provider offers the level of service suited to your business, right now. Don’t pay for what you don’t need. Get a clear, documented and agreed-upon list of services and be very clear about what you’ll be managing in-house. Also, gain an understanding of any extra services you can access, and what they will cost your business. And finally, take a forward-looking position on your partner selection, knowing as your business grows or diversifies, your provider is well-positioned to support you.
  • Automate what you can: Where relevant, make sure your payroll partner uses software to automate basic admin and simplistic tasks. This way, you won’t pay high-level professional fees for basic admin.
  • Check employee details: Ask your potential providers about their processes for checking and updating employee information. When a change occurs to a worker’s employment status, your statutory obligations may also change. Your chosen partner needs to be vigilant about updating them.
  • Secure your company and employee data: Data breaches were big news in Australia in 2022 (think Optus, Medibank). It’s imperative to understand how your provider handles the privacy and security of your business and employee data. Learn about the safeguards your potential partner has in place to ensure your data is secure, and your business and employees aren’t exposed.
  • Review your existing resources: Undertake a review of the functions your existing accounting software can perform. There’s a chance you already have the functionality to automate some or all of your payroll obligations.
  • Work with who you know: Look at your current business relationships. There are many accountants and bookkeepers in Australia who are also payroll providers. It’s worth asking your accountant or bookkeeper if they provide payroll services.

Organisations that don’t have the administrative resources or expertise to run payroll on their own are well-placed to source professional, expert guidance from a third-party payroll provider. No matter the size or complexity of your organisation, payroll outsourcing may be key to boosting your productivity and efficiency.

 

Also, please do contact us if you have any feedback or comments.

As one of the world’s leading providers of contingent worker management solutionsCXC is well-positioned to optimise all elements of your contingent workforce strategy.

With operations in more than 50 countries across five continents and decades of experience, we can assist with every aspect of your program.

If you’re looking to outsource payroll for your organisation, please don’t hesitate to contact us.