The Challenges of Payroll Outsourcing: What to Think About if Making a Move

Michael Piloto is the Vice President of Business Process Outsourcing for Velocity Technology Solutions.

Companies that make the decision to outsource their payroll systems to private cloud hosting typically have to face the fact that the legacy systems they are using will need to be replaced for a system that is native to the cloud hosting company. Making that transition can be a painful experience that can last much longer than the time it takes to migrate to the new system. There are other options.

A more favorable option for some companies would be to move existing payroll systems to a private cloud provider, enabling the company to be productive immediately after the cutover. This also helps a company avert any learning curves that are typically associated with moves like this. While this is not a standard industry approach, our company recognizes that if a company has a choice to keep their legacy payroll system in place, many times they will prefer that option. 

For example, Velocity’s business model offers customers the option to utilize their existing payroll system within its private cloud. This alleviates the challenge of integrating to another tool by using an existing payroll module. If a company does not have a payroll application, experts can help determine the best tool to meet the business’ needs. 

Companies Seek a Variety of Solutions, Including Full Service Call Center

Outsourcing a payroll operation can be a difficult decision and a great deal of trust will be required. As companies consider making a payroll outsourcing move to the cloud, they should be looking for a solution that is both comprehensive and scalable. Qualified solution providers enable companies to focus on their core business while the provider handles the payroll administration, time and labor, payroll processing, tax filing and compliance. Some providers even offer the capability to offer a full-service Employee Call Center to provide expert answers for any benefits, HR or payroll questions.  

Payroll is one of the most important employer transactions and it has to be done right. Companies have to manage important data sets such as payroll cycles, local tax data, period-end processing, and payroll production. An ideal solution provider automates all of these practices. Employers are also responsible for tracking and reporting employee attendance data. They would greatly benefit from a system that fully integrates that information into the payroll system, which ultimately saves time and money.

Many companies continue to use paper-based transaction systems when it comes to payroll processing. Outsourcing is becoming more popular. A cloud environment offers numerous benefits over these systems. It includes the automated paperless processing of regularly scheduled payrolls, as well as off-cycle and manual check processing when required. Risks are also minimized in a cloud environment as it provides full-service direct deposit, stop payments, voids, cancellations, funding notification, balancing, and check reconciliation. Some solution providers will even go as far as preparing and filing federal, state, and local taxes to required agencies, establishing new tax jurisdictions, and distributing W-2s, W-2Cs and co 1099-Rs. In many ways, these providers can turn out to be a valuable extension to an in-house HR team.

A Compelling Value Proposition

Companies that are considering the outsourcing of their payroll operations in a cloud environment, whether it is on a legacy system or an entirely new one, have to consider the costs and the benefits of such a move. In my opinion, there are three key benefits that stand out:

Upside of the Cloud: Company stakeholders are not expected to be application or system experts. The solution provider staffs experts who will maintain the application and have the knowledge to support it.

Compliance Alliance:  It can be challenging for in-house stakeholders to stay current with year-to-year tax updates. A solution provider that can support and maintain the tax tables helps to ensure that the company stays compliant with the law. A qualified solution provider maintains certified payroll resources that implement and test the changes. Those people can engage with company stakeholders as needed and help them understand the impacts of the changes.

Risk to Reward:  Garnishments are time bound and it is difficult at times to get them into the system and paid to the the appropriate parties within specific guidelines. Outsourcing this process to a qualified solution provider ensures it will be handled effectively and in turn decreases the risk to the company.