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How to manage outsourcing your payroll
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Outsource magazine: thought-leadership and outsourcing strategy | March 29, 2015

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How to manage outsourcing your payroll

How to manage outsourcing your payroll
Karen Paterson

The decision to outsource usually comes from a number of organisational internal pressures; this can be budget and the requirement to save costs, it can be the lack of available skills locally to do the work in house, or it can be a global initiative, if the organisation is international. The decision to outsource is outlined by the matrix below:


In summary; if there is a shortage of skilled staff and the cost of technology is high, it makes sense to outsource.

Once the decision has been made, then it is important to understand the real cost of payroll in-house, and to make a cost comparison. This should include the cost of labour and technology but also office space and power, stationery, postage etc. People, process and technology are the key determiners of payroll. The more manual the processes, the more people are needed to administer the payroll. The better the technology and process, the more automation can be achieved, and therefore the less people are involved in the pay cycle.

When choosing a payroll bureau, it is important to look at the underlying technology and their approach to the gross build-up. Do they offer employee self service and online payslips? What reports are available, and if relevant how do they integrate with your own systems? The cheapest is not necessarily the best. Do ask them to give you SLA history. Client references are usually not worth much – if they are going to give a bad reference, then they are hardly likely to be asked to do a reference in the first place! Finally, do ask for sample reports and payslips so you can see the quality of output. Find out if paper payslips are the method of distribution and if postage is included.

Once the supplier is selected, then it is very important the process is managed properly. Business processes relating to payroll need to be mapped; this may include HR transactions. Integration requirements with other systems such as HR and Finance need to be decided upon and defined – and most importantly the gross build-up defined. A pay calendar should be created, setting out cut-offs for data processing dates, money transmission date and pay date. This should be communicated to everyone involved with the payroll. When moving a payroll to another system, it is important that the new payroll system is run in parallel with the old system until the two systems match and everyone is sure that the data is correct. This is usually achieved in three parallel runs. If there is integration with other systems, then a test environment should be created and full payroll runs undertaken from end to end; so every part of the process is checked. The data used for this ideally should be obvisgated live data, so the coverage is sufficient to test every data type in an interface.

Finally, do not forget the management of change. Tell your employees about the new payroll, ensure that everyone involved in payroll understands new processes and responsibilities. Be careful to ensure when the payroll goes live that there is a period of hand holding until everyone is happy it is stable.

These techniques should ensure outsourcing your payroll is a pleasant experience.