Decoding Payroll: Demand Drivers, Challenges, Market Trends

Employees are one of the most valuable assets to any organization. From handling day-to-day activities to bringing in new business, an organization’s success largely depends on human resources. As a result, employers must recognize and value their employees’ efforts. This is where payroll comes in, a fundamental function for both HR and Finance regardless of the organization’s size. A secure, reliable, and error-free payroll process has a considerable impact on employee productivity and the enterprise’s financial stability. However, payroll is not just about remuneration; there’s much more to it. To understand more about payroll, the global challenges of payroll management, or how you can overcome payroll outsourcing difficulties, you should keep reading.  

Defining payroll with its various components 

The organization’s cumulative amount of fees to its staff, contractors, and other workers is referred to as payroll. It is one of the largest company’s expenses and time-consuming human resource activity. 

The Payroll department requires knowledge about current salaries and wages, employee tax-related data, gross and net pay, overtime, and employee benefits. These functions may vary depending on the country’s regulations and laws. For instance, as there is no individual income tax scheme in KSA, payroll outsourcing in Saudi Arabia may not include employee tax data. Instead, the employers have obligations towards social security contributions or GOSI for Saudi citizens. GOSI calculations fall under the ownership of outsourcing companies in KSA. 

What are the global challenges of payroll? 

Managing all the components of payroll in-house can be a daunting and time-consuming task that comes with a set of challenges. Despite using various tools and resources, common problems with payroll management should be consistently addressed to ensure a smooth payroll closure.  

  • Optimizing local laws 

One of the hurdles of global business is staying compliant with local laws, which puts you at risk with accounting legislation. The risk magnifies when a company is trying to expand its entity in a new country. 

  • Data security concern

Data security is always a concern, more so in the payroll industry. In addition, payroll departments face risks such as fraud, fund-embezzlement, tampering of files, etc. Multiple servers and backup locations are used to secure data; however, this can be a significant expense for medium or small businesses.

  • Administrative burden 

The in-house payroll process is usually done through a manual process and susceptible to human error. This imposes a substantial administrative burden on HR teams to cross-check, verify and complete the whole process.  

  • Incompatible software 

Organizations often use multiple software/programs for various functions when they have an in-house payroll department. For example, the program you use to maintain an employee profile may differ from the program you use to track employee performance. Therefore, investing in an advanced HR/ Payroll system that can integrate all these functions is essential for streamlining the entire process and reducing the time used for data monitoring

One-step solution: payroll outsourcing 

Understanding the basics of finance is essential for efficient payroll management. According to Deloitte’s survey report, 21% of employers in North America admitted that their payroll function requires enhancement. As a result, organizations often outsource their payroll processing to an external company. This helps the company save money and resources by eliminating the need for in-house assets. Outsourced payroll solutions also allow the HR departments to concentrate on their core businesses and increase productivity and employee engagement. 

What drives decisions to outsource payroll? 

Outsourcing may be needed for various purposes, including reducing headcount or improving internal productivity to streamline the operation. Outsourcing can also resolve the inability of existing capacity to satisfy rising demand. There may be some practical considerations as well. For example, internally required resources may be unavailable, or the company may wish to free up resources for other purposes. Companies who team up with outsourcing firms gain access to world-class talent pools, as well as sharing some of the aforementioned risks within a payroll environment. Larger outsourcing firms are better equipped to handle these risks and any technical issues.   

Market trends and demand drivers of payroll outsourcing

The fastest-growing part of the global human resource outsourcing (HRO) industry is payroll outsourcing. As businesses are increasingly adopting payroll outsourcing to achieve their objectives, it is projected that the worldwide payroll outsourcing market will hit $10336 million by 2023, with a constant CAGR of 4.4 percent, and growth is consistent across all regions. 

A recent study in the USA revealed that the top global demand driver of payroll outsourcing is cost savings. Above 20% noticed that payroll outsourcing leads to a reduction of expenditure or control technology-driven cost. The other significant demand drivers are rising demand for MCPO (Multi-country payroll outsourcing), standardization of process, better compliance, and technological advantages.

We will go over how outsourcing your payroll adds value to your business in our next post. Keep following us for more exciting updates and information. 

If you have any queries related to information in our blogs or other insights, please write to us at [email protected] 

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