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Payroll Outsourcing vs Payroll Software—What’s The Best Option For You?

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For companies seeking help with payroll management, it usually boils down to two choices—payroll software, or payroll outsourcing. Both these options come with their own merits and demerits and selection usually hinges on the requirements of the business. For instance, you may want to retain a high degree of control over the payroll process, in which case payroll software might be the right choice for you. On the other hand, if you require enhanced assistance in matters regarding payroll it is worthwhile to consider outsourcing.

Understanding Payroll Software

Comprising tasks like data entry and minute calculations, apart from making tricky judgment calls, payroll management is one of the most complex parts of running a business. Specialised software makes the job easier by automating large parts of the process. A good payroll software performs the following key functions:

  • Makes payroll calculations
  • Generates payslips
  • Assists in the calculation of bonus, holiday pay etc.
  • Performs certain tasks like year-end reporting automatically
  • Assists in maintaining compliance

Being a repository of data, it also provides crucial insights into the payroll process which enhances the quality of decision-making. The overall effectiveness of payroll management is improved by making the process relatively effortless and consequently less error-prone.

Parameters of Selection

Selecting between payroll services and payroll software can be quite confusing but approaching it in a systematic manner can empower you to make the right decision.

Below are certain parameters to take into account while making your selection. Use them to identify your needs and invest in the right payroll solution.

1. Budget

While cost should never be the sole determinant, it is fair to assume that the choice you make will be influenced in a major way by the budget you have set aside. Purchasing payroll software may cost less but it will also mean retaining your payroll team. Outsourcing, on the other hand, can help you strip down the in-house payroll department and shift the workers to more productive roles.

2. Control

Transferring a business process to an external service provider will inevitably lead to some loss of control. It is for you to determine whether this can be offset by other outsourcing benefits. It is important to look at the larger picture in this regard.

3. Training & Subscription

If you opt for payroll software, remember that there will be additional costs in terms of training employees to use the application. There may also be recurring costs for purchasing annual subscription of the payroll platform.

4. Error Reduction

Although both solutions help in the reduction of errors by a considerable degree, outsourcing is more effective. Why? Because payroll software is generally operated by in-house personnel whose expertise is unlikely to match that of the specialists at the vending agency. This is important because errors have the potential to deprive the company of millions of dirhams in fines and penalties due to non-compliance.

5. Data Security

Your payroll system contains tons of sensitive data like salary information, bank details etc. making it vulnerable to leakage and cyber-crime. While both software manufacturers and outsourcing companies have robust safeguards to prevent such incidents, working with outsourcing companies is more beneficial in this regard. The reason is that they employ payroll software while also being likely to take additional measures to safeguard their data. As a specialised payroll agency catering to several companies, data security is of prime importance to your service provider making them likely to invest additional resources to prevent hacking and data breach.

6. Assistance

Payroll can be a complicated affair. There are many aspects to it that require advanced technical knowledge. The lack of expertise could prove to be costly for a business by resulting in fines and penalties. If you are thinking of purchasing payroll software, it is important to understand that it does not entail access to human expertise. By contrast, opting for an outsourcing plan will allow you to benefit from the knowledge of specialists and domain experts while also ensuring assistance in matters like payroll-related tax filing.

The Last Word

It is critical to note a couple of points. First, payroll software is often bundled with packages such as accounting or HR management applications which you may have already purchased in the past. In this case there is little choice since the decision has already been made for you.

Second, most vendors these days use some kind of cloud-based payroll management software which allows you to enjoy dual benefit. In other words, you can leverage the advantages of both payroll software and payroll services by opting for the latter.

Ultimately your choice depends on the requirements of your business. The above-mentioned parameters can assist in making the right decision in line with your needs, budget and situation.

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