Traditionally, small businesses have done their payroll processes manually as they looked to keep operating costs low. As such, their finance departments have helped to track work hours of each employee, including that of overtime, in order to multiply by the agreed wage rates in order to arrive at the gross pay. After which, deductibles such as insurance and CPF contributions need to be accounted for in order to reach the net pay. This final sum is the amount distributed to employees via cheque, bank transfer or GIRO.
However, increasingly small businesses are recognising the many indirect costs incurred in performing manual payroll processing in-house. As such, they are switching over to either software payroll systems or outsourcing the function altogether to payroll outsourcing services. In this article, we take you through three main drivers behind the switch from manual payroll processing.
Firstly, a myriad of laws apply to payroll processing, with different agencies enforcing various aspects of it. As such, changes to the laws may be missed by your finance department. For example, if the minimum wage is raised or a new leave entitlement law is instituted, failure to comply though through negligence, will not be sufficient to excuse your business from the corresponding penalties. Outsourcing your payroll function grants you access to specialists who are up-to-date with the latest changes in the regulations. Their knowledge should help you to navigate pass any misstep and advise you on the best practices when managing your payroll.
Secondly, most payroll agencies utilise high end cloud-based software that grant clients access to sophisticated tools while sharing the cost with their peers. More importantly, their heavy usage of the system ensures that the software is first properly integrated into your processes and also utilised to its full capability. Another overlooked benefit is the ability of such cloud systems to integrate with your administrative and human resource functions. This reduces the number of solutions that your business requires and thus the complexity of your operations. However, to do so would require a mastering of the tools, which may not be feasible in the short term for your in-house staff.
Finally, risk management is at a premium in the current business climate. While payroll processing may be a routine process, but this also makes it vulnerable to a lapse in data management. Payroll fraud can potentially cost a business a lot of money and be demoralising for its employees. Instead of placing all payroll related responsibilities on a few individuals, it would make risk management sense to instead empower them with resources. Moreover, if these individuals were to leave the team, they would take all knowledge manual payroll processing with them, leaving a big hole in the company. By having established a structure beforehand, the job can be handed over with relative ease.
