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Payroll management is one of the most complicated aspects of conducting business. Consider the intricacies of tax compliance, to calculating employee benefits, to making provision for salary adjustments. This is further exacerbated by the process consuming valuable time, draining resources and errors being caused by inattention to detail or by oversights – especially when done as a manual process.

These are just a few of the reasons why most businesses , especially developing or thinly staffed organisations – choose to outsource payroll to skilled providers. But as companies grow, there comes a point when it might make more sense to do payroll in-house.

The various options available to businesses need to be carefully considered, as each has its merits.

The Case for Payroll Outsourcing

Outsourcing payroll to an external service provider makes sense for those without the in-house skills to run the process effectively themselves, with benefits including:

More time to focus on core business aspects: Employees’ time spent on routine payroll-related administrative work is freed up, allowing them to focus on initiatives such as development, sales, and customer support.

Compliance and accuracy

Providers offering payroll solutions are up to date with constantly changing tax legislation, UIF and PAYE regulations, as well as labour laws and legislation that controls the payment of employees. This reduces the chance of errors or costly penalties due to non-compliance.

Cost savings

Maintaining an in-house payroll department can be costly for small to medium-sized businesses, especially in light of required software, training, and HR expertise.

Access to technology and reporting

Advanced payroll systems offer inherent automation, employee self-service websites, and real-time reporting capability, which is beyond the resources that most small businesses can establish on their own.

Security and privacy

Payroll data must remain private irrespective of business size. Professional payroll companies invest heavily in secure systems and data protection mechanisms to reduce the risk of fraud or breaches – a cost that would be massive for most users to carry.

Scalability

Outsourced payroll solutions can be quickly scaled up as a company grows – whether to new provinces or with hundreds of new employees.

Signs it’s Time to bring Payroll In-House

Outsourcing payroll is not a long-term solution for all businesses. As a business matures, there will be signs that it’s time to consider bringing payroll in-house again:

Company size and complexity increases

When a company has a large workforce or complex compensation arrangements (such as numerous payroll runs, bonuses, and shift differentials), maintaining control of the nuances in-house offers more flexibility and control.

Customisation requirement

In-house payroll can be tailored to meet specific business needs, such as tailored reporting, integration with in-house systems (such as ERP or HR software), and customised workflows.

Control and visibility over data

As companies grow, direct access to payroll data becomes increasingly valuable. Internal payroll allows instant access to previous history and payroll answers sooner.

Dedicated HR or finance personnel

Once a company has established its HR and finance operations and has developed staff, internal payroll can be less expensive in the long run.

High volume of payroll changes

Businesses with frequent payroll adjustments – such as commissions, occasional employees, or irregular schedules – may find that internal change management increases responsiveness and accuracy.

Considering a Hybrid Payroll Model

Many businesses advocate for a hybrid system where payroll is kept in-house while back-up assistance is sourced via external consultants or via software support for compliance and processing activities e.g. for SARS submissions (EMP201 and EMP501), tax reconciliations, or year-end processes. This offers the best of both worlds: control with professional back-up.

Read our full guide on steps to follow for an effective payroll audit

Choose Wisely and Get Payroll Right  for Your Business

Decisions about whether to keep payroll in-house or to leverage external service providers for the expertise and convenience that they bring, need to be made carefully. Be sure to consider all of your options before making what could be a costly and frustrating mistake.

If you’re uncertain, request a consultation with Labournet to assess your current process and recommend the most efficient, compliant, and cost-effective approach for your business.