Payroll is one of the time-consuming back-office duties. Companies with large number of employees spend huge amount of time and effort on payroll processing at the end to the beginning of every month. In addition to the specialized knowledge requirement, due to the recent labor shortage, it is hard to find the right employees. Therefore, we recommend outsourcing to reduce the burden of your payroll transactions.
In recent years, the number of companies using outsourcing has increased in various fields and payroll process is relatively easy to be outsourced. Although accurate calculation, cross-checking process and high expertise are required, it is monthly routine tasks and rarely seen the unique process flow.
What is payroll outsourcing?
Payroll process involves various tasks. Here are the current trends in payroll outsourcing and the tasks where you might consider outsourcing.
Payroll Outsourcing Statistics
Only about 10 % of Japanese businesses outsource their payroll provision to an external payroll provider which is still lower compared to western countries. As a result, many businesses are still hesitant and concerned, find it hassle to change to outsourcing. However in the future, it is expected that more companies will adopt outsourcing services, along with the working population declines, as experienced resources will reach their retirement age.
Which part of payroll should you outsource?
Each outsourcing provider has its own unique characteristics and offers a variety of services.
The service range is often different based on each outsourcing provider. However, generally payroll process includes following tasks;
・Time and attendance check
Time sheets and overtime hours checking. Many companies use IC cards to automate the process. However, there are still many companies handling manually as to check each time sheet individually.
From the confirmed attendance data, calculate salary and various allowances, such as overtime and commuting expenses, apply deduction and calculate final salary and actual payment amount.
・Fund transfer and tax payment
Once the payment amount is confirmed, process fund transfer, followed by processing income tax and residence tax deduction, if apply.
At the yearend, calculate all deductions, dependents, insurance premiums and/or medical expenses for each employee, and settle withholding tax payment.
In addition to the above, companies must also perform other payroll functions to record pay slip, manage paid leave and claim for industrial accident compensation insurance.
The complexities of payroll processing require a significant time commitment. However, you can outsource almost all or even only a complicated part of these operations. Outsourcing will be a great support if using it wisely.
Knowledge and skills required for payroll process!
Payroll is involved in taxation law and social insurance system, hence compliance with these government regulations has to be met. Therefore, it is considered as a specialized task that required wide range of knowledge, such as related laws, to stay on top of changing government regulations basic calculation skills and understanding of various allowances of the company.
Currently, payroll tools linked to time and attendance management are also available and it could also support your needs, but yet many companies still rely on the manual calculations.
In addition to the above, information management, security knowledge and morals are critical for payroll process, because of the highly sensitive information involved such as employees’ personal data.
Pros and cons of outsourcing
What is the difference between outsourcing payroll and processing it in-house?
Benefit of outsourcing payroll calculations
There are three main benefits to outsource payroll calculations.
Payroll providers charge fees, but compared to the in-house expenses including welfare, travel and overtime costs during busy time, outsourcing payroll may actually save businesses money. Additionally, as it is not necessary to build an in-house team, hiring and educational costs will also be saved.
・Accurate calculation by payroll specialist
Many outsourcing providers have a dedicated team with years of payroll experience, labor laws experts and qualified social insurance labor consultants. Since they have an expertise in payroll process, you can expect a quick response to law revisions and multilevel cross-checking.
・Secure staff even during the busy season
There are busy times in payroll such as year-end adjustment period and when the residence tax is finalized. The more employees you have, the more payroll work there is to do. However, outsourcing payroll gives employees to focus on other important tasks on business growth, not having to spend long hours on payroll process.
Disadvantages of the outsourcing
Outsourcing is not just about the benefits. Recognize the disadvantages in advance and maximize the benefits.
・Loss of business knowledge and human resource development
Outsourcing is very convenient because you can entrust the entire payroll process. However, companies might have risks of the potential loss of business knowledge and opportunities for human resource development in-house. It is important to share business flows and working manuals with outsourcing providers to keep the expertise in-house team.
・Prompt action may not be available
Most of the staff at the outsourcing providers are teleworkers. Since each person works in a different place and time zone, it may not be possible to respond on time, in case of trouble. Consider carefully what to outsource.
・Higher risk for security breaches
Due to the nature of outsourcing, the company data will be disclosed to the third parties, naturally, the risk of information leakage is higher than working with in-house team. You may wish to do due diligent on your outsourcing partner to ensure you are comfortable with the system and security protocol. You could also consider splitting the process to ensure important information/intellectual property stays in-house.
Consider pros and cons before finalize the flow for outsourcing
In-house work and outsourcing both have their pros and cons. In order to make a fully informed decision, you need to consider all of the pros and cons now and into the future.
Cost of outsourcing in Japan
How much does it cost to outsource payroll process?
Basic payroll calculation
The amount varies depending on the outsourcing provider and the number of the staff. For simple payroll calculation, it is around600 to 1,000 yen per person. However the total charge is determined by adding up the basic fees to optional fees, such as payment or year-end adjustment.
Benefit of scale
The cost calculation is depending on the number of employees, for example, even for 50 people, the cost for the outsourcing is about 50,000 to 100,000 yen per month. However if you have more employees, the cost will reduce according to the numbers. When you process in-house, on top of hourly wage, welfare expenses, social insurance premiums and commuting expenses will be added. Hence, you can see outsourcing can reduce your cost significantly.
The hidden cost; mistakes to avoid!
Explanation above was calculated based on simple payroll case. If the attendance management system is complicated, unique or frequent changes of regulation, it will be charged additional fees. Make sure to discuss the fee and the service they offer and whether they match your requirements when requesting for quotation.
Tips in choosing the right outsourcing partner
As each service provider has the different structure, it is important to find the right partner to meet your requirement. Let’s take a look at the key points!;
Do they have expertise in the relevant area and knowledge?
It is necessary to confirm whether the outsourcing company has the relevant skills and knowledge for your requirement. For example, you may require to consult with the specialist such as a social insurance labor consultant or create bookkeeping data. It is important to have a firm discussion, when making a quotation, about what portion to outsource and what to pay attention to.
Is it worth the cost?
You also need to get quotation from several companies to compare the cost structures. In addition to that, service coverage area differs depending on the outsourcing companies. You need to look at various service coverage not just the basic charge and carefully compare the free structures. It would be perfect if there is a package that meet your requirement. However if you required additional service, additional charges for optional support may be required.
Do they have the thorough information management?
When using the outsourcing company, the risk of information leakage will be higher. To prevent that, it is necessary to confirm what kind of security measures they take.
By using outsourcing company, you can reduce the burden of your monthly payroll process. If you do not have enough manpower and your staff work overtime every month to calculate your payroll, we recommend to outsource this monthly repeated work. The benefits include the scalability, cost reduction and free up the staff to focus on more effective operation.
Spend less time sorting out payroll process and more time on your company’s growth and core activities by outsourcing your payroll transactions!