33% of employers penalized for payroll mistakes; 10 things to consider when choosing a reliable payroll management service

Although there are no numbers for Canada, in the United States the IRS estimates that one out of every three employers has been penalized for payroll mistakes. In Canada, the statistics are probably similar. It’s difficult enough to keep up with the changes in rules and laws, let alone your company policies. This is why over 50% of larger companies outsource at least part of their HR needs. [See story here>>]

Financial implications

Fines for mistakes can be substantial or nominal, but damage to reputation can be significant. Both short-term, and long-term, many employers are moving to outsourced payroll management. Considering the importance of payroll, and the expertise required, how do you choose a payroll management service? Payroll management, when efficient, is almost always more cost-effective handled by outsourcing, but how do you find the best service?

Before starting your search, it’s critical to list your own needs, including aspects such as confidentiality, security and future expansion. How do you process payroll now? How involved will you be day-to-day, week-to-week and month-to-month? Most important is to list any unique and specific factors; every company and every industry has its unique aspects. Once you’ve itemized everything, the hunt is on for a credible, reliable outsource partner.

Key aspects of reviewing

Ultimately, your own specific needs will dictate your “key aspects” lists, but generally, most reviews include:

• Track record with implementing new rules and regulations
• Security review
• How well does the potential payroll management service understand your specific company needs
• Expertise and credentials of the management service
• Communication: how often and how well do they report and communicate?
• Scalability in terms of your growth
• Responsibility: what does the prospective management service due in the case of errors?
• Actual costs for services
• Accessibility to information and transparency
• Expertise in your sector (not always a big factor.)

Questions to ask

1. How long have you been in business?

This seems obvious, but newer outsource prospects may counter with “we’re more up to date” or with “technology” claims such as cloud access. However, a company that has been doing payroll management for ten years has a track record, verifiable client case histories, and stability. Especially in the case of accountability (our last question), the best assurance is years in business. A payroll management service that has a long track record also tends to be much more up to date with not only new regulations, policies and laws — they can anticipate future changes. Experience matters.

2. How do you secure and manage our information?

This isn’t about a supplier running off with your money — that’s not an issue with a payroll management service with a track record. It’s about measures in place to ensure your data is encrypted. Who has access? What are their internal screening processes for their team members? What about backups of information? How is the information accessible to your company, and how secure is that access? With most transactions, payments and filings are done electronically; security is arguably one of the most important considerations.

3. How well do you understand our specific needs?

Of course, the process begins with you. After briefing your potential supplier, discover how well they comprehend the special factors, the sector challenges and the time-issues that matter to you.

4. Credentials and expertise of your assigned team?

Here, we’re referring more to the credentials and expertise of the team assigned to you. The question of “how long have you been in business” is the base of credibility, but what about the people who will work with you day-to-day, week-to-week? What are their qualifications? How long have these team members been with the payroll management service?

5. How do you communicate and report?

Long term, your satisfaction with any outsource will come down to communication. There can be problems in any function. How do they communicate issues? How do they solve problems? How often do they report both transactionally and generally? How personalized are the service and communication? Is support available any time, not just when payroll processes?

6. How do you handle our growth or change?

Companies grow — and sometimes shrink. Also, services dynamically change. For instance, you may change your benefits program or other factors. How will the prospective payroll management service ramp up services and teams as you grow? How does it impact your agreements and costs? How quickly can they facilitate growth or change?

7. What are the safeguards against mistakes, and who is accountable?

Even experts make mistakes, regardless of safeguards and checks, but it is good to know who is responsible for any issues.

8. What is my investment?

Payroll is an investment and an important one. Depending on the size of your company and your needs, it is almost always less expensive to outsource payroll management services, but what are your actual contractual costs? This question is for the sake of transparency and budgeting; no one is advocating saving money at the expense of quality service. Also worth asking, what are the costs of any additional services you may need on occasion.

9. How transparent is supervision?

Although you’re outsourcing management of payroll, ultimately you need access to information and clean transparency. Your outsource team becomes part of your team. How is information accessed? Who is your go-to for problems?

10. What is your expertise in my sector or niche?

This one is last because it isn’t even close to being the most critical consideration. Often super specialists are too narrow in focus or too rigid. When rating the value of each factor — ultimately, that’s up to you — but we usually would weight overall expertise, credibility and transparency over sector expertise. All other things being equal, it can be valuable to have niche experience.

Do you have any questions on reviewing your potential outsource Payroll Management Service? Please use our form, or give us a call: