As a business grows and scales, so too does the number of people on the team, bringing the business’ vision to life. However, with people (aka employees) comes payroll. Making sure you’re meeting obligations when it comes to your employer requirements can feel overwhelmingly complex, so outsourcing this process can seem like a great solution – and it can be! However, like all business decisions, outsourcing payroll is a decision that warrants deep consideration.
Before we get into the ‘should you or shouldn’t you’ discussion, let’s define payroll. Put simply, extremely simply, it’s calculating an employee’s pay and deductions, transferring their pay to their bank account, and paying tax and other obligations.
Let’s step sideways a little bit – payroll also includes payment of payroll tax. This is a self-assessing state tax, usually paid monthly by employers based on taxable wages paid to their employees. It requires an annual reconciliation each financial year. There’s a payroll tax liability and businesses must register for payroll tax once their total Australia-wide taxable waves exceeds the threshold. There are surcharges such as Mental Health and Wellbeing surcharge (Victoria only) and threshold reduction scales. There are variations for overseas workers and for Nexus provisions, and factors to take into account regarding contractors vs employees. This entire paragraph is our long-winded way of explaining that the entire concept and process of payroll has layers and nuances and complexities, which is why, of course, outsourcing payroll to the experts can seem like a really, really good idea!
So, here are the pros:
Again, overseeing payroll can be quite complex. Add an industry award or a registered agreement that your people work under, and multiply that complexity! Meeting obligations is something that keeps people up at night with worry, and so this opportunity to handball an essential task to a specialised service who live and breathe payroll just makes sense.
The tasks required in maintaining payroll are resource and time intensive. If a business doesn’t have a dedicated finance department or admin team, managing these tasks can take time and effort away from business building and delivery areas that are often already stretched. When a business is new, it’s not unusual for the business owner or founder to wear many hats and this is simply unsustainable for the long-term health of both the business and the individual.
Even when a business has a dedicated finance, HR, or operations role, outsourcing payroll can feel like a good option when you consider that the business is not beholden to one individual who will take leave, or could resign or retire thus impacting payroll continuity. Outsourced payroll providers allow for this, so there is no break in continuity.
In terms of cons – well, they apply to any aspect of outsourcing business tasks. Do your due diligence! Find the most appropriate company or service provider to manage payroll. Consider all factors, but particularly your return on investment. Will it indeed be more cost-effective to outsource payroll? What measures do they put in place to ensure compliance? What value adds can they provide? How flexible can they be in meeting your individual needs, or do they have a cookie-cutter approach where you need to fit into their rigid model?
Payroll compliance can feel like a minefield, so your first point of call is a trusted advisor. We’re more than happy to have a conversation with you to see where you’re at with your payroll compliance and how we could be of support.
The first step is to get in touch with our expert team of financial gurus, which you can organise by clicking here.