Payroll ranks among the most exacting tasks any organisation handles. Each month, people need to be paid the right amount at the right time, the payroll tax return has to go in to the tax authorities, and everything has to hold up against current legislation. This work calls for specialist knowledge, real accuracy and a close eye on shifting collective agreements, tax rules and social security law. It's easy to see why so many organisations now leave their payroll administration to a specialist. This article explains what outsourcing payroll administration involves, where the advantages lie, which options exist and what deserves your attention.
When you outsource payroll administration, a specialist external partner takes over your monthly salary processing. That covers calculating gross and net salaries, handling changes such as new starters, leavers and role changes, filing the payroll tax return with the tax authorities and providing pension overviews.
This is different from an arrangement where an external company also becomes the legal employer (sometimes called "payrolling" or "employer-of-record"). With payroll outsourcing, you stay the employer and only hand over the administrative side. The level of outsourcing is your choice. Some organisations outsource only the salary processing and keep everything else internal. Others prefer a broader arrangement, where the partner also advises on changes to collective agreements, tax schemes and employment-law matters.
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Every organisation wants its payroll administration running smoothly. The question is which route gets you there. Doing it yourself looks cheaper at first glance, though the true cost often runs higher than expected. Just think of the hours HR or finance teams lose to processing changes and fixing errors. Research by Remote shows the average HR department in the Netherlands spends three to six days a month on payroll administration. That's valuable time lost to work that could be going into strategic HR instead.
The picture on the ground is clear, with more and more organisations making the move to outsourcing their payroll. As many as 82.5% of Dutch HR managers have considered outsourcing their payroll administration. Worldwide, 73% of organisations now outsource at least one payroll activity, according to Deloitte, and in Europe the figure sits at 61%. The trend leaves little doubt: outsourcing payroll administration is fast becoming the norm.
Organisations come to outsourcing for all sorts of reasons. Whatever prompts the decision, the goal tends to be the same: reliable payroll that runs efficiently. Outsourcing brings several concrete benefits along the way. Here are the most important ones.
A specialist external partner works with proven processes, automated validations and current knowledge of tax obligations, which makes errors far less likely. That's worth a great deal, given that mistakes in the payroll tax return or a late filing can trigger serious penalties from the tax authorities.
Software tip! Payroll software automates the key parts of payroll administration and brings mistakes to an absolute minimum.
Outsourcing is an investment, though the overall cost frequently comes in under the in-house alternative. Weigh up the salaries of the people running payroll internally, the price of payroll software and licences, and the hidden cost of errors and corrections. Outsourcing also tends to run on a fixed rate per employee per month, which keeps spending clear and easy to forecast.
Salary processing is time-consuming and repetitive. Outsourcing it frees up lasting time for the HR work that really matters: employee engagement, talent development, strategic workforce planning and organisational development. In organisations with a lean HR team, the gain is especially welcome.
When payroll is kept in-house, the knowledge usually lives with one or two people. The moment one of them falls ill, moves on or can't keep up with the workload, everything comes under pressure. An external specialist team keeps things steady, whatever the season and whatever comes up.
New rules and adjustments appear all the time. A specialist payroll partner tracks them closely and applies each change to your payroll automatically, as soon as it comes into force. There's no need to keep up with any of it yourself, and outdated knowledge won't lead you into costly mistakes.
In summary, these are the key benefits of outsourcing your payroll administration:
Payroll administration can be outsourced in several ways. Which form suits you best comes down to the size of your organisation, the in-house knowledge you have and how much you want taken off your hands.
With full outsourcing, the entire payroll administration goes to an external payroll partner, covering the complete salary processing, the payroll tax return, the pension filings and any updates to collective agreements. You provide the input, and the partner looks after everything else. This model offers maximum support and appeals in particular to organisations without payroll expertise of their own.
Partial outsourcing entails keeping certain payroll administrative functions in-house, but outsourcing some tasks or more complex elements to an external partner. You could outsource the payroll tax return and the processing of collective agreements, for instance, but keep the day-to-day changes in-house. This model mixes internal involvement and external expertise.
A third option is to run payroll on specialist software, staying in charge yourself while drawing on the software provider's expertise whenever you need it. You handle the day-to-day payroll work, with payroll specialists on call for the trickier questions. This suits organisations that want to keep control, yet don't have, or don't want to build, all the payroll knowledge in-house.
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Outsourcing payroll administration isn't only an operational decision. You're placing a vital part of your organisation in someone else's hands. Choosing the right partner comes down to a handful of key factors, set out below.
Go for a partner with proven knowledge of legislation, collective agreements and tax obligations. Ask about the team's experience and how they keep up with the annual changes to the law.
A strong payroll partner links up neatly with your existing HR system, time tracking and other relevant tools. Data flows reliably between systems, with no more double entry.
Find out which tasks sit with the partner and which stay with you. Clear agreements on responsibilities, turnaround times and points of contact head off misunderstandings and make for a smooth partnership.
Payroll sometimes calls for fast action, an urgent correction or a tricky situation that can't wait. Pick a partner who's easy to reach and gives you a dedicated contact who knows your organisation.
Check that the partner demonstrably meets GDPR requirements. Ask about their security measures, how personal data is stored and deleted, and put a data processing agreement in place.
As your organisation grows, so does the complexity of your payroll. Choose an external payroll partner that scales with you easily, without you having to hire extra staff or overhaul your internal processes.
At BCS, our modern, specialist payroll software is backed by more than 45 years of payroll expertise. Each year, our software processes more than 2.2 million payslips and pays out over 3 billion euros in net salaries, for organisations of every size and across a wide range of sectors, small businesses and large corporates alike.
A one-size-fits-all package isn't our style. We work with you to find the payroll setup that suits your organisation, your priorities and the way you work. The software is modular and works well with the other parts of the BCS platform; HR, absence, learning and development among them. Payroll administration is never a stand-alone task, but part of a bigger, connected whole. We offer two service levels, so the support you receive matches exactly what your organisation needs.
You manage payroll administration yourself in our software. We take care of the legal updates, the payroll tax return and support at the end of the year. Ideal if you have the payroll expertise in-house and want full control.
We take on the heavy lifting. Our payroll experts handle the complete salary processing, including complex changes, updates to collective agreements, payroll audits and the payroll tax return. You submit the employee changes through our system, and we sort out the rest.