Questions to ask before you outsource payroll
by Preston on 2020-08-19
Tired of the payroll headache? Eager to let someone else take care of the details?
You’re not alone. In Remote’s Global Workplace Revolution Report, decision-makers at small- and medium-sized businesses expressed concern about their ability to keep their finances compliant in a remote-first world. Companies outsource payroll more than any other function, with about half of U.S. companies trusting outside help to manage their finances.
Outsourcing payroll can make sense for companies with as few as two employees and as many as tens of thousands, but making the switch doesn’t happen automatically. To make a smooth transition — and protect your business and your employees in the process — you should first understand the reality of your financial situation.
Are you sure you want to outsource?
Before you learn how, you must first understand why. Are you sure your business would benefit from outsourced payroll? Many companies realize immediate advantages, but it’s still important to recognize the signs you should outsource payroll.
For example, if you aren’t much of a numbers person, you probably need to outsource from day one. Your employees depend on you for on-time and error-free payments. If you can’t provide that, they may start looking for a more dependable employer.
If you have a small team and feel comfortable managing payroll yourself (or leaving it to a trusted team member), you may not need to outsource. However, keeping the function in house puts all the responsibility of compliance on you. That could expose your company to risk if not managed carefully by someone who appreciates the full weight of the responsibility.
Once you bring international team members into the picture, outsourcing evolves from an advantage to a necessity. Your business must work with an employer of record to hire full-time employees in other countries legally. Try to pay your international employees as contractors, and you could open yourself up to massive fines and penalties. Unless you want to waste time and money on a lengthy court battle in a country thousands of miles away, you would be far better off working with an employer of record.
If you find yourself wondering whether you need help, you almost certainly do. When you start reading articles with titles such as, “What to do before you outsource payroll?” you definitely do. Keep reading to learn how to get started.
How to outsource payroll responsibly
Begin your payroll outsourcing process by taking inventory not only of your financial documents but also of your needs. Which employees will you need to pay through your new payroll provider? Do any of them have special circumstances?
Not all payroll providers service the same kinds of clients. If you don’t know the difference between a PEO and an EOR, for example, you may get deep into talks with a vendor you like before realizing they don’t offer a critical service you need.
Go through your roster of employees and ask yourself a few questions to figure out the kind of partner you need.
- Where do my employees work? If everyone works in the same neighborhood, you will have different needs than a company with a fully distributed team will. Keep in mind, though, that in the new remote-first world, you may want to expand by hiring remote team members down the road. Companies with international workers should reach out to an EOR like Remote to discuss country-specific options.
- What kinds of benefits do I need to offer? Some payroll providers handle just that: payroll and nothing else. Most offer a wider range of services, though, including benefits management. You may be required to offer certain benefits where your employees live to remain compliant.
- Am I paying employees, contractors, or both? Many payroll providers that specialize in contractor payments do not offer a similarly robust option for full-time employees. Consider not only what you offer your employees, but how. Prioritize payroll outsourcing options that can help you provide your team with a great employee experience, not one that makes remote workers or contractors feel like second-class citizens.
- How would benefits change if I switched providers? Your employees may feel strongly if you begin working with a payroll provider that provides a different set of benefits. In the U.S., employees depend on their employers for health insurance, so changing to a company with a different set of plans could set off alarm bells for your team.
- What will I do with my extra time? Companies contract payroll providers so they can spend less time on labor-intensive payroll and benefits administration processes. What do you plan to do with all that extra time? Consider which areas of your business would benefit from the change and plan in advance to make the most of the shift.
Don’t know the answers to all of these questions? Don’t worry. In speaking with outsourced payroll providers about your needs, you will learn more about location-specific requirements and how a partner like Remote can help you avoid expensive compliance mistakes no matter where you hire.