Weighing up the cost of payroll to your business

Data from the Australian Payroll Association (APA), shows most Australian businesses are grossly underestimating the cost of managing their own payroll, meaning they could potentially access significant savings by using an outsourced payroll provider.

According to the APA’s data, the average cost of payroll to a business - taking into account all payroll-related costs - is around $125.29 per payslip.

Of course, there are variations according to business size, location and industry, but taken as a national average, this cost per payslip is much higher than many businesses realise.

The potential costs of managing payroll in-house go well beyond the financial outlay, particularly when you take into account the complexities of legislative changes and the subsequent opportunity for error. For many businesses, managing the reputational risk of payroll has become equally as important as ensuring staff are paid on time.

In particular, ‘wage theft’ has become a hot topic in recent years, with numerous high-profile cases highlighting how easy it is for often well-intentioned employers to be caught out. In many cases, honest mistakes from businesses trying to navigate the complex payroll compliance environment have resulted in unhappy staff, bad publicity and financial disaster.

This article by our payroll advisory team explores compliance issues and risk mitigation, particularly in light of recent and ongoing changes to legislation, superannuation and taxation requirements.

For businesses struggling to keep up with these changes or with the cost of payroll processing, it may be worth weighing up the pros and cons – financial and otherwise – of an outsourced payroll function.

In doing so, consider the following benefits of outsourcing:

  • Take advantage of payroll experts who are always up to date with regulations, withholding rates and government forms – reducing the burden on you and your staff
  • Mitigate the risks of running an in-house payroll team and the significant costs involved in replacing key payroll staff should they resign
  • Take the pain out of leave requests and approvals, with leave transactions and balances managed in one, user-friendly and payroll-integrated system
  • Easily adjust payroll services to align to your changing needs - scaling up or down as required
  • Give your employees a greatly improved employee experience by using a specialised, fit-for-purpose, cloud-based system
  • Reduce the risk of reputational damage should your payroll information fall into the wrong hands with secure data storage
  • Improve your management reporting with real-time, accurate payroll information that makes planning for growth and predicting changes to staffing needs much easier.

Lastly, payroll is time-consuming. Outsourcing payroll helps you save time and free up resources for more important matters. Outsourcing allows business owners, management, HR and finance personnel to dedicate their time to more strategic, value-adding tasks.

Direct cost savings include those associated with IT infrastructure and technical expenses, and the cost of hiring and retaining specialised payroll staff.

In doing the sums, outsourcing your payroll function may work out to be far more cost effective than you think. In fact, when compared with the national average, it’s not unusual for our clients to find they cut the cost of their payroll by more than 66 per cent.

Take the following example:

Business XYZ is in the manufacturing sector and has 40 employees, paid on a monthly basis. According to the APA data, the average cost per payslip for a business of this size and sector is $204.82 – well above the national average.

A similar business, outsourcing their payroll to an expert provider such as BDO, may be able to reduce this cost by as much as 75 per cent per payslip – excluding any one-off system set up fees or agreed additional services.

Interested in learning if outsourced payroll is suitable for you? Our team works with a broad range of Australian and overseas businesses to provide payroll outsourcing services. Contact us to discuss the benefits of a reliable and efficient payroll function for your business.