Back-office activities, such as managing accounts, payroll and other financial responsibilities, are non-core functions within a company. A non-core business function is neither being the central of a business nor a profit centre (meaning, the function costs are not charged to customers and the company recognized them as overheads). Several long-term benefits from outsourcing non-core functions have been acknowledged by many professionals and business owners.
A company has to comply with a wide range of rules and regulations so as to meet the responsibilities as an employer for statutory purpose. This recurring activity would consume the working hours and remove the focus away from the core activities. Although it may not help to improve the business performance, payroll is one of the critical business functions. If the function is not carried out properly, it could adversely affect the business in many areas, such as the company’s reputation and the employee morale.
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Payroll processing requires sound knowledge on the complex rules and formulas, such as different CPF contributing rates for different age groups, pro-ration of an incomplete work month, encashment of annual leaves and work flow required for a leaving foreign employee. The board has to ensure that the skills and knowledge of the human resources (HR) departmental staff are updated with the regular changes in the statutory requirements. Otherwise, the management might also be involved to assist during audits. The payroll agent will be accountable to reply auditors or statutory boards during audits and attend to employees if they are doubtful on the amounts received or taxed.
The regular payroll service fee is mostly lower than a full headcount cost (comprising basic wage, bonus, provident funds, costs of training and staff benefits). In addition, software subscription fee or maintenance cost for desktop software could be excluded in your budget planning. Payroll service packages, flexible to cater clients’ needs, are available from basic to complex payroll duties. Typically, the professional payslips and computational reports, available in the basic package, are sufficient for internal purpose. The payroll agent would also send out timely reminders to clients when there are upcoming events which need responses from the principal. For instance, the request for additional information (outside payroll reports) to prepare the annual income statements (i.e. Form IR8A) is one of the such events.
The advantages of outsourcing payroll function to a professional third-party agency are inter-related. From the reduction in the administrative inconvenience, risks of errors and involvement to the savings in time and money, the decision to outsource allows more time to focus on the business core.