By Sharon Tayfield, Operations Director at Praxima Payroll Africa Systems (Pty) Ltd
Payroll is one facet of small business that is usually an afterthought as it does not contribute directly to the bottom line. It is often regarded as an administrative headache that takes more time than it should, especially in small businesses, and draws resources away from other business critical tasks. While payroll may be challenging for small businesses, it is a crucial aspect of keeping any enterprise running smoothly, and as such needs to be dealt with as efficiently and effectively as possible.
Small businesses often do not have the resources and expertise to effectively deal with the myriad of administrative tasks that go hand in hand with payroll, such as tax calculations, payments and reconciliations.
There are also various pieces of legislation that need to be complied with: from the Income Tax Act to Basic Conditions of Employment, Employment Equity, Skills Development and Unemployment Insurance – to mention a few.
Ensuring compliance is one of the greatest challenges when it comes to payroll systems, and is also one of the most important aspects to address, as there are heavy financial penalties attached to non-compliance that could put small businesses under serious financial threat. Outsourcing the payroll assists with this, as a good outsource provider will be aware of all relevant legislation, as well as making certain that taxes are paid on time and correctly reconciled, thereby avoiding penalties.
Keeping costs down is another major concern for the smaller enterprise: not simply the set up costs of a system but also the maintenance and ongoing costs attached thereto. Moving payroll from an in-house function to an outsourced function can help to drive costs down and keep them low, as it can then be run as an operational expense instead of a capital outlay expense.
As resources are often scarce in small businesses, payroll administration cannot be a stand-alone job and it is often assigned as an extra task to someone else in the organisation This person may not be completely up to date with current legislation or necessarily have a comprehensive understanding of what the role entails, which may lead to errors and penalties. Outsourcing provides access to highly skilled professionals that many small businesses could not afford to hire permanently, which means that the payroll will be handled by experts, reducing the risk of errors and down time.
Maintaining confidentiality can be difficult in small businesses. However, payroll confidentiality is vital, and breaches can have disastrous effects on business. By outsourcing the payroll function of a small business, this confidential information is kept outside of the company and it is far less likely that confidentiality will be compromised.
When choosing an outsourced provider for the payroll function it is important to ensure that the solution provided is flexible and scalable to meet the needs of the business and grow with the company. The solution should also be rules-based and updated continually to ensure that it is always fully compliant with the latest in tax and labour legislation. A system that keeps track of all changes including detailed start and end dates for each record is crucial.
Payroll is very rarely a completely glitch free process. It is complex, complicated and prone to error if run manually or incorrectly, and it can be very challenging to run effectively within a small business.
Outsourcing the payroll process makes sense for small businesses. Not only can it provide access to skills and expertise at a fraction of the cost of hiring these resources in-house, it can also help to lessen administrative headaches and ensure things run smoothly, minimising queries and penalties and creating a professional payroll environment to keep employees happy.