Benefits and Risk of Payroll Outsourcing

Posted by Sajjad Haider Chartered Accounts on December 27th, 2020

Carrying out an outsourcing activity consists of hiring a company specialized in some service by another company that is not specialize in it, the latter is known as outsourcing.

A good example of this is “payroll”, since any company has the need to keep a responsible and orderly control of it; However, there are specialized businesses that can do it better, more efficiently and at a lower cost than having an internal department and staff dedicated to these tasks. Learn a little more about the advantages and disadvantages of outsourcing personnel here.

How does payroll outsourcing work?

The contracting company provides basic information on its personnel and the contracted one is in charge of calculating the payments and scheduling them. This results in a reduction in costs because we avoid having an entire department in charge of payroll issues such as: paying wages and salaries, calculating salaries, social security and withholdings, managing pension funds, among other things.

Although this practice started as a great idea to attract specialized talent, save operating costs and, at the same time, provide better service to employees, and has been carried out for more than six decades; In recent years it has become an unfair practice to evade taxes and social security, to separate itself from the distribution of profits and benefits and, therefore, to disparage workers. Unfortunately, 85% of the companies that hire this service have the latter as their goal.

Although there is still no official figure, there are estimates that there are companies that are engaged in payroll outsourcing, and of these thousands, only a few are registered. The seriousness of the matter lies in the fact that most companies hire these non-registered companies solely to save money.

The personnel who are hired under this scheme are registered with a minimum salary while the rest of their salary is provided through other bank accounts. In this way companies derive advantages and indirectly harming the advantages of employees who are designing company’s future.

Risk of a payroll outsourcing:

• On the other hand, some experts believe that there are some risks to illegal hiring, which are:
• There may be a disloyalty of the worker with the institution.
• A sense of belonging is not created, and the company suffers with low productivity.
• Staff turnover tends to increase, which generates more recruitment and training expenses.

Advantages of a payroll outsourcing:

The benefits that companies obtain by outsourcing this service are the following:

• Possibility of having a more flexible and lightweight organization.
• Ability to focus on the main operation of your business.
• Reduction in administrative burden.
• Possibility of evaluating employees in a trial or training period.
• Reduction of legal and labor contingencies.
• The service is fully deductible.
• Support in the creation of jobs.

Tips for a proper hiring of payroll outsourcing:

The most important thing when making the decision to hire these services is that the priority should not be savings in the short, medium or long term, but rather an option to hire specialized talent that the company does not produce. With this in mind, here are some points to consider before hiring a payroll outsourcing service:

• Check the reputation of the company. Research background, success stories and the companies that work with the company.
• Make sure hiring staff is legal.
• Make regular and random reviews of the staff to see if their contributions are made in a timely manner.
• Verify that the salary that is asked is the same that is paid.
• Visit the company's facilities (this will always give you greater security).

Payroll Outsourcing Dubai may help you in this regard as you know, hiring payroll outsourcing services is a sensitive topic so make sure you select the best.