When it comes to running a successful business there are a number of areas that cannot be neglected, but few are anywhere near as important as a well-managed payroll system. Getting it right goes beyond merely choosing good payroll software. Do you opt for in-house payroll, or look to an external partner that can provide outsourced payroll solutions?

Why is payroll so important in running a healthy company? In the simplest way of looking at things, staff won’t work to their optimum – or indeed work at all – when there are problems with the managed payroll service.

In any case, a badly managed payroll is costly. In Australia, it’s estimated that the top employers are guilty of around $4.4million in payroll mistakes annually. Often this can result from insufficient resources for the department, and the job of rectifying the mistake means more expense.

The price of payroll professionals is rising all the time, too, although this shouldn’t be taken to mean that in-house is always worse than outsourced payroll, which also comes with its own risks. Ultimately, if you choose to cut corners in your own office or place trust in a poor payroll partner company the results will be the same – big problems.

Where one key differentiator can be found is in terms of people power, or perhaps more accurately people hours. If major expansion plans are in place, or the company has been going through a period of significant growth then it stands to reason that an outsourced payroll may be the best solution— freeing up more staff to concentrate on making sure that expansion stays on course.

However, it’s important to realise that providers don’t necessarily come cheap. There are flat set-up fees, which can stretch into the thousands, along with a per-employee-rate, chargeable to each pay cycle. So if you’re looking for outsourced payroll, choosing the right people to run that managed payroll is obviously essential.

However in-house is still a great option for many businesses. “Keeping payroll in-house gives you the greatest level of control over your data and instant access to insights about pay statistics,” says Andrew Northcott, founder of Roubler, which specialises in payroll software and provision. “You also have the benefit of greater agility and lower costs if you need to run out-of-cycle pay runs. If you use a paperless, integrated workforce management and payroll software package it can be a very quick and easy process,” he notes.

Overall though, there are fewer costs incurred when you go with an outsourced payroll, which may make it easier to manage the overall budget. In addition to the flat fee and cost per-employee, the only real expense is comes from paying a member of staff for their time in managing the relationship between your business and the payroll provider. That could include hourly wages for meetings, travel costs, and so forth.

“There are several advantages [of outsourcing], but the biggest is that you have the peace of mind knowing that your payroll is in the hands of experienced staff who are completely up to date on current employment laws and payroll legislation,” he continues.

“You aren’t forever wondering if you’ve run payroll correctly or if you are at risk of a fine. Outsourcing also allows managers and staff who aren’t payroll experts to focus on their roles and do what they do best for the benefit of the business.”

Needless to say, for many companies, particularly at the smaller end of the business world, the idea of outsourcing can be daunting. It implies being tied into formal contracts, often before you really know whether the solution is workable or affordable in the long run. Mr Northcott has specific advice in such instances.

“It’s important to understand that financial benefits aren’t always immediately visible. Firstly, by outsourcing you don’t need to consider software costs or the costs of training the person who is responsible for payroll in your business in current employment laws and compliance issues.

“Secondly, you save money in terms of time. In small business, payroll is often the responsibility of the owner or manager, but this means that working on an administrative function like payroll takes them away from valuable tasks that help them build their business and increase revenue.”

All of which brings us to one last question, which is perhaps the most important of all. If a business does decide to go with an outsourced payroll, placing the responsibilities of a managed payroll service in the hands of a third party, how do managers and directors decide on which providers to trust?

“Firstly, ask as many questions as possible about the software they use – it should give you the option to build-in compliance tools and controls to prevent errors,” adds Mr Northcott.

“Look for a partner who will provide the exact level of service you need. You won’t save much time if you are constantly transferring and checking data. Also, look for a partner who will be open and transparent about data – it’s your payroll after all.”