Key Factors Which Influence The Payroll Outsourcing Decision

SBS Global key factors which influence the payroll outsourcing decision

Money is one of the prime motivators for all. Big corporates, individuals and governments are all very particular when it comes to collecting the money that is owed to them. However, managing money is not that easy, especially for large organizations and governments. Its far more difficult for MNCs employing thousands of people and having their footprint throughout the globe. For example, to pay the employees’ wages and the governments’ taxes and duties accurately, on time, every time, is not an easy task. It requires a company to process large chunks of data on a regular basis. It also requires a thorough knowledge of the statutory laws of various governments and the accounting software. It is for reasons like these that many organizations outsource their payroll processing to Finance and Accounting Outsourcing (FAO) partners. After all, an accurately paid employee is more likely to be a happy and productive employee.

So, what are the other factors that influence the payroll outsourcing decision? Let us have a look at them.

Key Factors That Influence Payroll Outsourcing Decision:

Size and complexity of the organization: Small startups that employ less than 20 employees do not need to process many financial transactions a day or even in a month. The founder of the startup himself can pay the employees’ wages and the taxes and duties required. Moreover, startups are usually not present in many countries. Most of the startups are present in only one country. Therefore, the number of statutory laws they need to comply with is also less. This eliminates the need to outsource their payroll processes. MNCs on the contrary, are present in multiple countries and they process millions of financial transactions a day. Unless they are an accounting or a law based firm, they will not be able to handle the payroll processes themselves. Hence, they outsource their payroll processes to trusted or reputed FAO partners.

Cost factor: Generally, FAO partners charge far less for their payroll services than in-house accountants. They are cost-effective, especially in the long run. That’s one of the main reasons why MNCs outsource their payroll processes to FAO partners.

Difficulty in finding and retaining specialized accountants: Generally, finding accountants who possess the skill, experience, and attitude you need is difficult. It is a time-consuming and tedious process. This is one key reason why mid and large-sized organizations outsource their payroll processes to FAO partners who are experts at hiring and managing various accounting specialists.

Duration of projects: If your organization does big projects on a regular basis, then it makes sense to outsource your payroll processes full-time. On the contrary, if you are a startup, and you’ve only got a temporary project, then you should only outsource your payroll processes until the duration of your contract, as the need to process a large number of financial transactions is only temporary.

Focus on core business: If you are a technology or an IT-based organization, then it makes perfect sense to outsource mundane payroll tasks and focus on your core technology. Innovation must always keep on improving your products and you must not get accustomed to the old technologies that have been used in the past.

Avoiding penalties: Indian statutory laws have become very strict these days. The Indian Government charges around Rs. 60,000 in fines annually for late or incorrect payments (of any kind, be it employees’ wages or tax payments). To avoid such risks, most of the organizations tie-up with reliable FAO partners who take care of companies’ payroll processing needs. If you have a team of In-house accountants you have to monitor their work constantly to avoid any mistakes, corruption, and penalties.

Security of financial transactions: If you want to keep your financial transactions highly secure and accurate, then you must use reliable accounting software and cloud technologies. Keeping yourself updated on the latest accounting software and cloud technology and buying/renting/upgrading it regularly  is not easy nor is it desirable if you want to concentrate on your core business. That’s another main reason why large corporates outsource their payroll tasks to reliable FAO partners who use the latest accounting software and cloud technologies to do highly secure and accurate payroll processing. Startups usually use the reasonably secure net banking services of banks to credit minor salaries and taxes.

HRIS (Human Resource Information System): Generally, the accounting software used by FAO partners provides HRIS facility. Using this facility, companies are able to: view invoices and payroll reports, access and update employee information, enter new employees, enter time reporting information, offer benefit open enrollment, communicate with employees, create custom reports, track PTO (Paid Time Off), upload benefits plans and custom benefits documents, upload employee handbooks and other HR PDF, track licenses / certifications for employees, performance reviews, training records, and total compensation reports. The company’s employees can also: review checks, review benefit information, update personal and professional information, and avail online enrollment benefits.


Whether a company hires an FAO partner or not depends on the above-mentioned factors. Among these, one can say that the size and complexity of the organization are the most influential factors. Startups and small companies usually do In-house payroll processing while large organizations and MNCs typically outsource their payroll processing activity. Both In-house and outsourced payroll processing have their merits and demerits. So, one must take the size, needs, and goals of the organization, as well as the other key considerations mentioned above,  into account, before deciding on either of the two options.

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