When it comes to running a business, there are some business functions that cannot be compromised. One of them is payroll processing. There is nothing more important than ensuring a well-managed payroll system.
Ensuring that payroll is executed well goes beyond utilising a robust payroll software. A poorly managed payroll system can result in hefty payroll mistakes, low productivity levels and poor employee engagement levels.
Why is the decision between in-house or outsourced payroll so important?
Given that a well-managed payroll system is key to a healthy business, the decision then lies in whether the organisation should opt for in-house payroll or leave payroll processing in the hands of an outsourced external provider. There are some pros and cons associated with both options and the final decision ultimately boils down to which option works best for the organisation.
It is fairly common for organisations to make the switch between outsourced payroll to in-house payroll processing, and vice versa. Some of the commonly quoted reasons may include cost, more control over the payroll processes, flexibility and security.
Cost efficiency
Payroll is one of the biggest cost centres in any business operations and is also the most critical. Labour cost, be it in-house or external, are simply one part of the entire cost equation. Organisations need to account for paying staff to handle and check payroll, annual payroll software licensing fees, payroll distributions and paying for cloud storage of historical payroll records. All these can add up to a significant amount of the operating costs. It is imperative to weigh the benefits and costs of outsourcing payroll versus processing it in-house, and whether setting up an in-house payroll software system is financially and operationally sustainable in the long run.
Compliance
The organisation’s ability to adhere to statutory legislations and labour laws is one of the biggest factors in ensuring accurate and compliant payroll records. A robust and updated payroll software can help organisations to remain compliant with updated payroll regulations by ensuring that the payroll software is regularly updated once there are any changes in labour law or statutory contributions. Concurrently, organisations can opt to avoid the hassle of having to constantly monitor for changes in labour laws by engaging external payroll vendors to process payroll in accordance with the respective countries’ payroll regulations.
Key considerations when switching to in-house payroll processing
Payroll staff capabilities
Switching from outsourcing payroll to processing it in-house is a herculean task. Not only does this mean that payroll staff have to be inherently aware of the end to end payroll process, they also need to familiarise themselves with the nuances of the respective countries labour laws and regulations.
Migration process
Aside from ensuring internal staff’s capabilities, organisations also need to migrate historical payroll records from the external vendor back in-house, while ensuring the data is formatted in accordance with the in-house payroll software. The entire migration can be an arduous and long process, whereby multiple steps are involved – integrating the Human Resource Management System (HRMS) with existing systems, setting up payroll Standard Operating Policies (SOPs), linkage to organisation’s corporate bank accounts, and setting up appropriate levels of employee access to payroll data. Once all these integration and migration steps are completed, organisations may also need to roll out a communication and change management plan to educate employees on the new payroll process and system.
Fraud
In-house payroll processing makes it easier for fraudulent activities to occur given that payroll data and confidential employee records are stored within the organisation itself. There may also be instances in which fraudulent activities occur unknowingly when payroll staff are executing daily payroll operations. Some of the common instances include misclassification of employees or poor records management, leading to inaccuracies in payroll data.
No single solution
There is no single solution for organisation when it comes to payroll processing. Organisations may choose to outsource their payroll services, only to switch back to in-house payroll processing at a certain juncture. The key consideration is to weigh the benefits as well as the opportunity costs between outsourced payroll versus in-house payroll processing. However, when considering both options, it is perhaps helpful for organisations to consider which payroll processing option is sustainable in the long run.
Why is it crucial to maintain payroll confidentiality?
There are many reasons why it is crucial to ensure payroll confidentiality.
Prevents identity theft
Payroll records do not simply provide an employee’s compensation records. It may also contain other sensitive employee information such as registered name, personal identification number, and personal address. For this information falls into the wrong hands, this may risk the employee’s personal information being used for illegal purposes.
Prevents jealousy among employees
Compensation may be a sensitive topic for some employees. Imagine the consequences if two employees from the same team at the same internal grade finds out that one is being remunerated more than the other? Employers cannot stop employees from willingly discussing compensation among themselves. It is important to keep employees’ payroll information confidential from employees.
Protect business information
Keeping your payroll records confidential provides you with a competitive edge over your business competitors. It prevents them from “stealing” away your employees and key talent by offering a more competitive compensation package than what your organisation is currently paying.
Ways to maintain payroll records confidentiality
It is imperative to have in place proper payroll record-keeping guidelines and procedures to minimise the risk of payroll data breaches. Here are five do’s to maintain payroll records accurately and securely.
Make use of online storage
If you are like majority of organisations that are trying to move away from storing payroll records in cabinets full of ring files, that’s great! Storing payroll records in cloud-based platforms means that employers do not have to worry about the lack of storage space. Cloud-based platforms also offer employers enhanced data security features and encryption software. It allows large databases of payroll records to be stored securely while maintaining easy accessibility.
Limit access to payroll data
At the same time, limit the extent of access that each designated user has. For instance, if you have an employee that is responsible for running payroll, ensure that he or she only has access to payroll information that is necessary for payroll processing. What do you do when there is another employee that manages that company’s bank accounts for payroll? Ensure you only grant him or her access to view payroll records without the editing functionality. Limit and grant the appropriate access to the people that have access to payroll records. This minimises the risk of unauthorised access to confidential payroll information.
Create strong passwords
Creating a strong password limits the chances of unauthorised access to payroll data. A good password will include a combination of uppercase and lowercase letters, symbols and numbers. Ensure that only authorised employees have access to these passwords. Avoid using a password that is easy to guess such as your company name or personal name. Similarly, create different passwords for each corporate account and payroll systems.
Change passwords regularly
If the employee that was responsible for managing payroll has resigned, do change the passwords for all the accounts that the particular employee has access to. This prevents the resigned employee from accessing confidential payroll data after they leave the organisation. It is a good practice to change your passwords regularly such as every three or four months. Even if employees that are handling payroll do not resign from the organisation. This makes it more difficult to guess the passwords.
Destroy old records securely
When destroying old payroll records, ensure that they are done securely to avoid any misuse of confidential information. Payroll records, no matter how backdated they may be, may still contain sensitive information. Using a document shredder is a good and quick way to destroy hardcopies of historical payroll information securely.