Business
The Hidden Costs of Payroll on Businesses
Global Banking & Finance Review®
Company
Like many businesses today, you’re probably under pressure to lower operating costs across your business – perhaps in your payroll function. By average, payroll accounts for 50 to 60 per cent of a company’s overall spending. While payroll cost is inevitable, companies can implement creative ways to lower it. But when it comes to the overall process of the payroll system, companies can take some actions to ensure they are cost-effective, such as outsourcing. Otherwise, they’ll be spending more than they’re supposed to.
Refer below to find out the hidden payroll costs on businesses.
Technology is one of the most crucial hidden costs for in-house payroll, owing to the ownership of hardware, installation service, and rollout of client software, ongoing licensing, provision of IT support, not to mention potential cyber-attacks and outages. A fully managed payroll provider can absorb these costs and risks. While in-house technology can get outdated quickly, a vendor can invest in ongoing payroll software development resulting in a rich digital experience for employees.
Companies relying on manual payroll processes may find it overwhelming to invest in payroll technology. However, outsourced payroll service providers can provide more competitive costs than internal payroll functions, thanks to economies of scale across multiple consumers. Payroll outsourcing can lower your total cost by at least 20% by partnering with a credible supplier, leaving you with more money to reinvest in where it’s more necessary.
Another technological aspect is how in-house payroll can be more costly to manage. Organisations that outsource payroll and HR in a single provider can, on average, save 32% more than those companies that don’t. In addition, the rich data produced from integrating these functionalities allow organisations to make decisions at a strategic level, considering the hidden costs and profitability.
One of the hidden payroll costs on businesses is Employer’s National Insurance. Every employer has to pay national insurance contributions on behalf of their employees. The amount will depend on how much the employee receives in salary.
Employer’s National Insurance refers to taxes paid by employers to help fund government benefits programs, such as state pensions. The contribution is in the form of payroll deductions. It aims to assist workers who will get unemployed or sick. Employees also have the option to make voluntary payments to increase the amount of pension they will eventually receive. In the UK, employer’s insurance is a legal requirement for all businesses, protecting them in case the employee gets injured or gets sick at work.
Self-employed individuals and British citizens working outside the country can make voluntary contributions towards pension eligibility. Employees who worked less than 35 years cannot qualify for the maximum pension benefit without making voluntary payments. The pay-out can be higher for those making voluntary contributions or defer taking their benefits until a later age.
If you choose an in-house payroll team, you must put time and money into staying compliant. The best solution is to hire trained payroll specialists in this area. Ensuring your payroll system remains compliant, secure, and accurate takes plenty of time, money and effort if you will manage it in-house.
Employment laws differ from one country to another, and so do payroll laws. As an employer, you must be aware of these laws. Given all the nuances of these laws, it’s easy to miss things in your payroll system.
With the ever-changing legislation on payroll, employers have to be confident in complex calculations. Do you have enough resources to upskill your in-house payroll personnel? A payroll specialist can help maintain your legislative compliance with payroll, including taxes, insurance, and pensions auto-enrolment. An outsourced specialist can also give you access to payroll subject matter experts, saving you a hefty amount of money on consultancy fees.
Organisations should be aware of the hidden cost of failing to conduct a payroll audit or late submission to HMRC. In case of discrepancies or failure to account for the tax, HMRC will consider the lost taxes and insurance, including penalties and interests. The best way to avoid these risks and the costs that come with them is by outsourcing payroll to experts.
Payroll is among the most significant expenses for every organisation. But it’s easy to understand why. Employees are the backbone of any business and should get paid for their efforts and hard work. However, payroll processing comes with many hidden costs that may not be easy to spot by your in-house payroll staff.
Among the hidden costs is overtime pay. For employees working over 40 hours per week or eight hours each day, employers are obliged to pay them at a higher rate, depending on the local labour laws. The added cost can make a massive financial dent in the organisation’s budget if not carefully monitored.
Another overlooked cost when processing payroll includes employee benefits like health insurance, vacation pay, retirement plans, and compensation on sick days. These are non-negotiables and can add up fast if you miss these hidden costs. In addition, payroll processing can incur administrative fees from third-party providers or banks that handle salaries and taxes on the employer’s behalf.
Employer’s insurance is another hidden cost of payroll in an organisation. It safeguards businesses from legal and compensation expenses resulting from employee claims. The insurance is crucial, for you can be liable if one of your employees gets sick or sustains an injury while working for you.
Remember that the health and safety of your employees are of paramount importance. As an employer, you must uphold responsibility in keeping your employees safe. Something as simple as slipping due to a wet floor can result in a claim, costing you hefty sums of money.
Accidents can happen anytime, and you can protect your company through employer’s insurance. A payroll specialist can help to ensure you are paying the right employers’ liability insurance to save you from the financial burden if your employees get injured at work.
Payroll technology refers to software and systems used to manage employee compensation, including calculating wages, taxes, and benefits. It helps streamline payroll processes and ensure compliance with regulations.
Compliance costs in payroll refer to expenses incurred to ensure adherence to employment laws and regulations, including hiring specialists and maintaining accurate records.
Hidden costs of payroll processing can include overtime pay, employee benefits, and administrative fees associated with managing payroll systems and outsourcing services.
Employer's insurance protects businesses from financial liabilities related to employee claims, such as injuries or illnesses sustained at work, and is often legally required.
Explore more articles in the Business category
