Some may argue that the function of payroll is an internal matter, and that the less outside involvement there is in a business, the better. Nigel Bird, managing director of PayDay Software Systems, believes there is merit in outsourcing increasingly intricate payroll duties to a specialist.
“Outsourcing your payroll enables management to focus on the core competencies of the business,” says Bird. “Small business owners should be free to hone in on what is important, like growing the business, and not have to worry about payroll every month.”
By outsourcing payroll, businesses can save money in terms of labour costs, staff training, office space, and the necessary IT equipment and software. Legal matters pertaining to labour can also be handled by an external service provider. “From a safety and security point of view, keeping payroll information off business premises is better as it contains confidential information such as staff salaries, ID numbers, and addresses,” Bird says.
Experts will tell you that there is no definite benchmark at which a company or small business should start considering the outsourcing route. Bird explains, “Scalability of outsourcing versus what the client wants to achieve is often the deciding factor. But outsourcing has two tiers, complete or partial outsourcing.”
Complete outsourcing is where the entire payroll from processing of input, employee automated clearing bureau (ACB) payment generation, third party vendor first line contact and payments, file integrations through to the financial system, payslip generation, IRP5 generation and report generation is handled.
Partial outsourcing involves having portions of the process handled externally such as input and report generation only.
There are a number of things that can go wrong when a business does its own payroll, and the legal and financial implications can be crippling for any business. The South African Revenue Service (SARS) is continually changing tax legislation and employers are expected to stay abreast of these changes.
Bird explains that 2010 was the first year that all businesses in the country were required to do bi-annual tax submissions in February and August, instead of one big submission in February. “The Payroll Authors Group [PAG] and the South African Payroll Association [SAPA] work together with SARS and legislation now dictates that all payroll companies will have to supply a file extract twice a year, as well as monthly UIF [Unemployment Insurance Fund] extracts.”
Lack of legislative and legal adherence relative to both human capital and payroll compliances can have severe implications and penalties. There is of course also the challenge of whether the business even has the skills to do payroll monthly.
The usual problems when dealing with any IT infrastructure are also an everyday danger and problems such as computer crashes, missing data files, incorrect backups and computer viruses, can occur.
Using a reputable payroll company is as important as buying into a reputable franchise. As always, the threat of fly-by-night payroll companies is there, but this can be counteracted with good old-fashioned research.
Although SAPA is not a legislative body, it does represent the interests of payroll companies in the country and would be able to advise on a suitable and reputable payroll company.
Bird says, “Working with a reputable firm is extremely important. PayDay works with over 3 500 private companies and 46% of all local government use our software. Our 21 years of experience speaks for itself.”
The cost to outsource payroll can vary greatly depending on the level of service required. Costs can range from R40 upwards per person per month and will depend on whether the outsourcing is partial or complete. “When requesting the service provider to provide a complete turnkey solution, the costing will naturally escalate.”
Companies thinking of going the outsource route need to ask themselves whether the cost is justified for the type of business they are running, and whether it will influence productivity levels. The business owner also needs to ensure the payroll service provider has a proven track record and that support structures are in place to provide adequate service.
Bird highlights that although a company may outsource their payroll, if their Pay-As-You-Earn (PAYE), or UIF, or Skills Levy is not paid over to SARS by the payroll service provider, the company is still legally liable for the penalty.
Bird feels that it is advisable for the business to draft a separate contract with the payroll company. This contract should contain what penalties will be passed on to the payroll service provider should they fail to timeously transfer or submit payments or documents to SARS on behalf of the business.