On the face of it, you might think that an outsourced payroll service is a luxury your business cannot afford.
Depending upon the provider / service required you could reasonably expect to be paying between $5-10 per employee, per payroll. Which is far more than you’d pay than by simply processing it in-house right? Let’s find out.
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Let’s break this down and go through a worked example.
Company X is a business with 50 Employees.
Weekly commitment to payroll processing for the in-house Payroll Officer is 1 day per week.
Some examples of the the sort of activities they would be doing:
The business processes payrolls every fortnight.
They use a simple but common model for In-house processing using spreadsheets for timesheets and accounting software with a payroll function built in.
For comparison we will make use of a low and high range for the cost of the outsourced payroll service ($5 for low, $10 for high). We will base our calculations on a fortnightly payroll, being the most common paycycle in Australia.
Here's the approximate outsourcing payroll cost per employee in Australia:
Low cost ($5 per payslip):
50 employees x $5 x 26 (fortnights per year) / 12 (months)
= $541/month
High cost ($10 per payslip):
50 employees x $10 x 26 (fortnights per year) / 12 (months)
= $1083/month
Does that sound too expensive? Lets compare how much in-house payroll costs..
Monthly cost in Salary
$65,000 (annual salary of payroll officer) + 9.5% super / 261 (business days in 2018) = 272.70 (cost per day) * (1 day per week * 4.37 weeks per month) = $1,191.70 per month
Software Costs
Accounting Package with Payroll = $55 per month
Indirect Staff Costs
Average Tenure for employees is around 3.3 years in Australia (measured by the ABS in 2014).
Cost per year for hiring / on-boarding / training + Lost opportunity cost (time that could have been spent making money on other activities) I have estimated to be at least $10,000 (this could easily be much higher if staff turnover is higher and opportunity cost are more significant).
Cost per year = 10,000 / 3.3 (tenure length) = $3,030
Cost per month = 3030 / 12 = $252.50 per month
Now, let's compare the total monthly costs of outsourcing and in-house payroll processing:
| Aspect | Outsourced Payroll | In-House Payroll |
|---|---|---|
| Payroll Processing | $541 (low) | $1,191.70 |
| Software Costs | - | $55 |
| Indirect Staff Costs | - | $252.50 |
| Total Monthly Cost | $541 (low) to $1083 (high) | $1,499.20 |
The total savings of using an Outsourced Payroll provider = $415.87 to $957.53 per month
Outsourced Payroll is in many cases a significantly cheaper option when you factor in all the real costs associated with the in-house processing of Payrolls.
If you are interested in making your payroll easier as well as saving money, submit this form to request an Outsourced Payroll quote.
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