In fact, some of these companies are seeing double-digit growth, a trend that began from the middle of last year when the worldwide economy was spiraling downwards.

This is because many businesses, multi-nationals or otherwise, are looking to trim the fat, improve efficiency and reduce the staff in their accounting departments. In other words, they’re hoping to do more for less.

Benefits of Payroll Outsourcing
Most corporations understand the obvious benefits of Payroll Outsourcing, which are:

• They no longer need to manage people issues such as turnover, training, monitoring and increasing costs
• No payroll software and systems issues such as physical and network security, compliance, bugs, upgrades and system maintenance
• No hardware issues such as security matters, monitoring for viruses and other intrusions, upgrades and maintenance of PCs and printers

There’s so much that can be gained from outsourcing a single function, something everyone takes for granted but does not fully understand. The fact is that, no matter how well it’s done, the payroll function does not add value to an organisation’s core business goals and objectives. It just makes sense to outsource.

Something as mundane as Payroll Outsourcing, however, also offers a number of intangible but often ignored benefits like:

Confidentiality: Better control on confidentiality is a given. Payroll has to be confidential and keeping the function contained to minimum personnel with tighter control on physical and electronic data is most times difficult when payroll offices are not separated from the rest of the office and IT and vendors are expected to maintain the system.

Continuity: Turnover in any function is a huge business concern. However, such disruptions in payroll affect the accuracy, timely administration and disbursement of salaries and sends wrong signals, however misconceived they are, to the workforce.

Employers are also finding it increasingly difficult to find or even retain the right people to build a career processing payroll. After all, graduates these days do not find much of a challenge handling mundane roles like payroll.

Compliance: Lack of compliance in internally-handled payroll is one of the most common complaints most outsourcers hear. Poor and inadequate knowledge in the statutory changes, leads to non-compliance and results in penalties imposed by the regulatory bodies. Key changes in the statutory requirements require modification in systems, and a non-IT trained payroll executive may face severe difficulty in implementing such changes. Unfortunately, this is the point where disruptions occur and often go unnoticed until it’s too late.

An outsourcer, on the other hand, has to fulfill Service Level Agreements. And ensuring compliance is right at the top of their deliverables to the client.

Focus: Outsourcing payroll opens several windows of opportunity for HR, the employees concerned and many others who have been supporting payroll with management input, related operations, budgets, banking and other often invisible processes.

Outsourcing Payroll Requirements
By taking over all or part of a company’s payroll functions and processes, depending on the requirements, Payroll Outsourcing frees clients to focus on their main mission, while saving them man-hours and money.

Depending on the client’s needs, an outsourcing company is able to take on high-level functions, including some responsibilities of even the Chief Financial Officer, or lower-level work like transaction processing.

Currently, more and more multi-nationals and local corporations are hesitant and wary to hire staff and are more apt to explore outsourcing. People are much more willing to outsource a job/task than to add someone to the payroll, especially during an economic crisis.

Trends in Asia-Pacific
This trend appears to continue, crisis or no. Since the past decade, countries like India, Malaysia, the Philippines and Australia have been an outsourcing magnet, especially for US and European organisations attracted by the offering of low outsourcing costs and competent services.

According to a Frost & Sullivan study last year, Asia-Pacific’s contact outsourcing services industry is expected to grow to over three million seats by 2014, compared to 1.7 million in 2008. By 2011, revenue generated in the region is expected to surpass US$20 billion (RM71 billion). And the International Association of Outsourcing Professionals says that the bulk of revenue is expected to come from India, the Philippines, China and Malaysia, contributing over 54% of the total market revenues.

A Pikom (National ICT Association of Malaysia) study this year also showed that the local outsourcing industry is forecast to have a 15% compounded annual growth rate over the next five years, bringing in total revenue to US$1.9 billion by 2013, compared to US$1.1 billion in 2008.

A Dangerous Landscape
In light of the trends outlined by the 2008 study and similar ones, bigger HR firms began anticipating opportunities and started to make their move. Several first-tier HR Outsourcing firms increased their investments in large technology platforms and global skill sets – all to gain more market share from the bigger customers.

This move, however, led to spiraling running costs for them and in their quest to go for the bigger fish, their quality of services dropped, especially towards their mid-sized clients and lower. And these clients eventually lost faith in them.

All customers want is an outsourcing partner they can rely on, who does not drop them for bigger clients and who has in-depth HR knowledge. An outsourcing company does not necessarily have to be equipped with the latest technology as this is acquirable. Knowledge and integrity, however, are not so easily bought.

New Tax and Accounting Rulings
Other factors that have added to the appeal of outsourcing are several new rulings in accounting and taxation.

For instance, the Malaysian Inland Revenue Board’s new schedular tax deductions ruling, which came into effect in April this year requires all companies to schedule tax deductions for their entire payroll, which means additional workload for the companies’ human resource or finance department.

With this additional workload, multi-nationals are now realising that it is more efficient and cost effective to outsource these payroll tasks than burden their internal human resource or finance departments.

Similarly, the Sarbanes-Oxley Act, enacted in 2002 in the United States in reaction to a number of major corporate and accounting scandals, has also benefitted outsourcing firms. American-based multi-nationals with offices here in Malaysia are still bound by the Sarbanes-Oxley Act. To comply, it requires huge efforts on their part to deal with the documentation and processes, something that HR companies are well-equipped to handle.

From the perspective of these multi-nationals, it also makes more sense to outsource their payroll so that they are unburdened by non-revenue-generating administrative tasks and can focus on their core mission.

Outsourcing Does the Unexpected
The key take-away is that HR should focus on strategic initiatives in the organisation. This is where outsourcing comes in and does the unexpected. It gives corporations the time to focus on their core missions and provides them with resources from within. HR is no longer a backroom function but with Payroll & HR Outsourcing, HR can be a strategic segment of your business and a boardroom member.