Time and Cost Savings Top Reasons for Payroll Outsourcing

October 24, 2006 (PLANSPONSOR.com) - Nearly seven-in-ten (68%) respondents to a national survey of financial and human resources executives reported that efficiency is the main reason for outsourcing payroll processes and tax filing.

According to a press release on the 2006 Empagio Executive Study on Payroll and Tax Filing, saving time (47%) and saving money (31%) were the next most cited reasons for outsourcing payroll functions. Fewer headaches (18%), more time to focus on other areas of the department (18%), reduced errors (17%), more time to focus on strategy (9%) and customer service (5%) were other reasons executives gave for outsourcing.

Among the benefits of outsourcing payroll processes and payroll tax filing, 72% of respondents said outsourcing reduced the dollar value of and 69% of respondents said outsourcing has reduced the number of payroll tax penalties assessed on their organizations, the news release said.

Outsourcing Trends

Forty-three percent of executives surveyed said their organizations outsource payroll tax filing entirely or use a combination of outsourcing and in-house processes. Twenty-nine percent currently handle payroll tax filing in-house using third-party vendor software, while 28% said they use a proprietary software or technology program.

As for payroll processing, 35% of US executives surveyed reported their companies outsource payroll services entirely or use a combination of outsourcing and in-house. Thirty-eight percent of respondents said their company handles those services in-house using third-party vendor software and 27% said they use an internally developed payroll system.

More than half (56%) of executives indicated their companies outsource at least one payroll or payroll tax filing process. The majority (88%) of executives whose companies outsource said it is important to have payroll processes and payroll tax filing provided by a single outsourced provider.

Almost six-in-ten respondents (58%) whose companies outsource said their companies outsource check printing and nearly an equal number (57%) outsource checks and electronic fund transfers, including direct deposit of paychecks and electronic transfer of funds. Other processes outsourced, according to respondents, included:

  • Year-end tax forms (52%),
  • Processing services (48%),
  • Tax reporting and filing (42%),
  • Administration of pay deductions (38%),
  • Administration of pay garnishments and wage additions (30%),
  • Payments to third-parties from payroll (31%),
  • Calculation of net pay from gross (28%),
  • Employment verification (17%),
  • Reconciliation of payroll errors (14%), and
  • Timekeeping (11%).

According to the respondents, when it comes to payroll services and payroll tax filing, the four most valuable services an outsourced solution can provide are filing tax forms with all federal, state and local agencies (44%), updates on compliance regulations (39%), payroll or ensuring payments are deposited on time, every time (30%), and processing or calculating tax liabilities and collecting funds (30%).

Despite advantages, 74% of survey respondents reported they have some concerns about outsourcing. Those concerns, according to the press release, included:

  • Lack of responsiveness (43%),
  • Lack of customer service (35%),
  • Non-compliant reporting (18%),
  • Poor quality or ineffective technology/product (18%),
  • Concern that returns will not be completed on time (18%),
  • Volume of tracers (6%), and
  • Too many penalties (5%).

A total of 209 financial and HR executives responded to the survey, conducted online in September 2006. A copy of the survey report can be viewed from here .