Outsourcing payroll vs running it in-house: the pros and cons

Every business needs to run an accurate, compliant payroll to stay in the good books of the SA Revenue Service (Sars), avoid incidences of fraud or error, and maintain good relationships with its employees.

At the same time, business owners want to minimise the time and money they spend on running payroll so they can focus resources on growing revenues and profits.

There are two routes your company can take towards its goal of running a cost-effective payroll that meets Sars’s regulatory requirements: setting up your own payroll team and systems, or outsourcing payroll processing to an external service provider.

Both approaches have their pros and cons. Let’s take a closer look:

Running an in-house payroll

Many small and medium business owners prefer to run payroll services in-house because they want to maintain close control over their finances and employee data.

Pros:

• Given that cloud-based payroll software is so affordable these days, if you already have a good admin team in place, you can often run payroll in-house at a lower cost than you’d need to pay an external provide to do so.
• You’ll have instant access to payroll data when you need it to, for example, make changes or additions. 
• You’ll be in control of all processes and systems.

Cons:

• You may need to train or hire people to run the payroll.
• Your financial team might spend a lot of its time on payroll admin, rather than focusing on strategic growth. 

Outsourcing the payroll 

Outsourcing the payroll might make sense if you and your team don’t have enough hours in the day to do this task. Perhaps you’ve only just started hiring people and don’t have the time to skill up a resource to manage the payroll, or you’d rather use your time and resources to focus on business development. 

Pros:

• You can free up time and resources to focus on your core business.
• You can eliminate the need to train or hire in-house payroll staff.
• Payroll outsourcing can bring transparency and predictability to payroll processing costs. 

Cons

• You will need to entrust a third party with sensitive staff information. 
• You will not be able to access or change payroll information yourself, which could lead to delays and extra layers of bureaucracy. 

Choosing a payroll outsourcing provider 

So, if you’ve decided to outsource this task, how do you choose a payroll provider? The answer to this really depends on how big your company is and how much help you need with your payroll tasks.

If you’re running a smaller business, there’s a chance your accounting practice can help. Larger businesses with bigger payrolls or international operations might turn to a payroll specialist with a multinational operation. 

Ask yourself:

• Does the payroll provider have a reputation for quality service?
• Is it using a modern payroll software platform?
• Does it have a proven track record for compliance, including the ability to keep employee data safe? 
• How does its pricing compare to the market and to internal costs? 
• Which services do you require — keeping employee records, generating payslips, or making payments to Sars? 

How to make compliance easy if you opt to go the in-house route

Most of the work of running a payroll lies in monthly preparations, such as calculating hours, absences and bonuses for a mixture of salaried and contract staff.

The good news is that automated software can take care of much of this work for you, such as:

• Recording employee details;
• Working out employee pay and deductions;
• Reporting payroll information to Sars;
• Calculating how much you owe Sars; and 
• Working out amounts such as sick pay or maternity pay.

Choosing the right payroll software will help to alleviate your worries about compliance with Sars regulations, so you can focus on growth rather than admin.

Visit tax.sage.co.za for the latest expert advice, tips and support to help you stay ahead this tax year-end.

• About the author: Yolandi Esterhuizen is a registered tax practitioner and product compliance director at Sage Africa & Middle East.

This article was paid for by Sage.