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The Price of Paying – Costs Per Employee for Internal and Outsourced Payroll

Payroll isn’t always the easiest thing to get your head around. Even the most business-savvy, experienced professionals often scratch their head come time to talk award compliance. What is the best payroll system? Should your business pay weekly or fortnightly? How many professionals should you employ to manage your accounts? Obviously, there are no standardised answers to these questions, and the best solutions will vary for each industry and company. However, one of the first steps to tackling payroll is determining if internal or outsourced payroll services are more financially viable for you.

Internal payroll costs

Surveys by PwC have shown that it typically costs around $1400 per employee for large companies, and $2000 per employee for medium companies to operate payroll internally. These costs accumulate from:

  • Employing an accountant or accounts team

Whether your business is small or large, internal payroll requires either a dedicated member/s of staff to be hired for the purpose of accounting, or for an existing member to be trained to do the task. This means allowing a full salary, with benefits, for one or more extra staff members. According to a 2015 survey by Hudson Accounting and Finance, hiring a single experienced payroll supervisor can cost companies up to $100,000 a year.

  • Training costs

Even if you’ve hired experienced payroll staff members, your team will still need to be frequently trained. They will need to be updated on software changes and restructures in award compliance, and attend industry conferences. These costs will need to cover extras like training materials, and travel and accommodation for off-site training. The 2016 Payroll Benchmarking Report for The Australian Payroll Association (APA) saw an increase in these costs over the past year.

  • Investing in some form of payroll software

If your company is keeping payroll internal, a well-oiled payroll software is generally required to keep things running smoothly. Fees will vary based on the complexity of the software, but there are some baseline costs that all software incurs. Companies pay, typically, annual subscription fees for the software, plus an initial fee to have software installed, and recurring charges for upgrades and maintenance.

  • Setting up a secure server network

In order to keep your employees’ personal details safe, payroll systems need to operate on a secure server. If your company has a large number of employees, payroll will generate a lot of data, so several severs will probably need to be in place to hold all of the data. Furthermore, there needs to be a backup server in case of outages or initial server failures.

  • Cover for incorrect payment

Staying up to date with correct award compliance can be difficult within a company, and it is very easy to make small mistakes. However, even small under, or over, payments can cause financial setback. There are costs associated with paying staff overtime to rectify urgent issues, as well as well as potential Fair Work Act fines.

Outsourced payroll costs

The aforementioned APA payroll report saw large growth in the number of companies outsourcing their payroll, following trends in the US and Europe. This growth was reflected in all tiers of company size, and can be attributed to the ease of employing a professional agency to handle payroll. There is no need to consider the costs of employee training, software maintenance, or an accounting salary. The cost of outsourcing payroll will depend on which company you choose to work with. If you research, and find a company that offers tailored accounting solutions, the cost can be up to 50% lower than internal payroll. Paying a flat fee with an outsourced company covers:

  • Paycheck delivery

All employees will be paid in the timeframe requested by your business. You can choose the pay period to be weekly, fortnightly, monthly and so on based on your needs and rest assured that all staff will be remunerated on time.

  • Leave calculation

Outsourcing eliminates the need for management to manually keep track of each employees accrued leave. Outsourced payroll staff keep track of hours work and notify managers and employees of leave accrued.

  • Modern Award and Industrial Relations Compliance

Outsourced companies are payroll professionals, and experts in everything related to paying employees. It is their core job to remain up to date on all legislative changes and awards as outlined by Fair Work Australia. This allows your business peace of mind that all employees are being paid correctly.

  • Reports

If you select the right outsourced payroll company, they should provide you with all the reports you need, from costings to superannuation. Furthermore, they provide flexible reporting solutions to cover all your needs.

Roubler understands that an on time, accurate and secure payroll is crucial to your business. Remain in complete control of your payroll whilst outsourcing the administration burden and leverage the world class cloud based payroll technology solution.

Want to know more? Read our Ebook on payroll.

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