One of the most common issues happening in an organisation is miscalculation of employee’s pay, there must have been some consideration within every HR department at a certain point of time to weight the possibility of traditional in-house payroll or outsourcing. Here are the top 3 payroll challenges and the pro and cons of having it in-house or outsourced.

Top 3 major payroll issues: –

1. Misclassifying Employees.

Company employs different types of workers including permanent staff, part-timer, contract staff and freelance. Different types of workers are subjected to different tax requirements and benefits. A contract staff might not entitle for overtime and company pension compare to a full-time staff. As a result, payroll officer must be very cautious when classifying the employees.

2. Statutory and Regulatory Compliance.

Regulatory is various from country to country. In Singapore context, salary incudes basic pay but it does not cover meal and housing allowance, salary must be paid within 7 days after the end of payroll period, itemised pay slips are compulsory effective from 1 April 2016, penalty will be imposed if a company doesn’t comply.

3. Overtime Payment.

Overtime payment applies to employees under a contract of service with an employer but exclude managers and executives. In addition, employer must pay employee at least 1.5 times the hourly basic rate of pay and payment must be made within 14 days after the last day of the salary period, the formula applicable depends on the category of employee such as monthly-rated, daily-rated and piece-rated and etc. This policy is often times overlooked, resulting in employees being either underpaid or overpaid.

Now, let’s see the pros and cons of having payroll processing in-house vs outsourced: –

In-house Payroll Processing

Pros

1. Cost

Running payroll in-house is definitely cheaper than outsourcing payroll to 3rd party. In general, company will assign at least one headcount to manage payroll processing. However, for small to medium size company, the whole processing usually will take from a few days to maximum 2 weeks. In this case, the person can be deployed for other tasks such as recruitment and training.

2. Full control of sensitive information

Salary and employee benefits are the most sensitive information in an organisation. Therefore, in-house payroll has the full control instead of exposing the information to a third party.

3. Flexibility

Any last-minute changes such as increment, bonus and over time can be processed and pay without having drag to the following month. Company can choose to initiate advance payment such as incentive without having to inform third party outsourced vendor which likely will incur additional charges.

Cons

1. Additional cost

Besides a dedicated headcount to process payroll, company may invest on payroll software if the headcount is sizable.

2. Compliance to statutory changes

The officer must keep an eye on the recent statutory changes including tax and fund contribution. Any failure will subject to re-submission or even penalty.

Outsourced payroll processing

Pro

1. Accuracy and paid on-time

Accuracy and paid on-time are the most critical benefit of having payroll outsourced. Vendor such as Frontier e-HR with officers who have years of experienced and specialist in payroll processing. We ensure the payroll result is 100% accurate and delivered on-time.

2. Compliance to statutory changes

We always keep ourselves up to date for any statutory changes. Moreover, a lot of ad-hoc services such as preparation and submission of IR21, submission of make-up pay claim by national service man, submission of application for reimbursement on government paid leave such as childcare and maternity are provided to ease our client’s business efficiency.

3. Process multiple countries payroll

MNC or global company have subsidiaries across various countries. It is a challenging task to manage and consolidate the payroll information across the board. Frontier e-HR supports payroll outsourcing for multiple countries including Singapore, Malaysia, Thailand, Indonesia, Philippines and Hong Kong.

 4. Time saving

The time saved from payroll processing can be deployed to other strategic processes. It will be more value adding as compared to mundane data verification.

Cons

Last minute changes.

Every payroll processing cycle comes with cut-off date. A last-minute change from client may result in payment to the employee in the following month.

There is no right or wrong in choosing between payroll in-house or outsourced. However, the key reason why company should consider having their payroll outsourced over in-house is to focus on strategic decision and human resource development instead of mundane administrative tasks.