This is a common question that most international corporates have examined on a regular basis, even more so when it relates to African payrolls. Most out-sourced providers would immediately furnish the following traditional reasons:
- Saves time and valuable resources for the company;
- Reduces cost for the company;
- Provides better compliance with increased legislative compliance; and
- Provides improved security and ensures confidentiality of salary information.
Although the achievement of these outcomes is possible, it is often not the case (as explained below). Crucial to the success or failure of the above is the selection of the correct outsourced provider.
Cost saving is often cited by service providers as the principal rationale to outsource.Cognisance must be taken that the potential cost saving that may be achieved, is based on the size of the employee population, the frequency of changes in the payroll and the nature of the business. In fact, processing the payroll in-house can be more cost effective, especially considering that an out-sourced provider will still require information to be channeled through to them by a company official whether using an online portal or by other means.
Outsourcing should not aim to do the same job at a lower cost but rather, it must justify itself based on superior value delivery to the company. If the service offering is not superior to what can be provided internally, then why outsource?
Providing an African payroll service whether on an outsourced basis or on an insourced shared service basis is fraught with danger. This is a complex task where the company must ensure that the provider or the shared service department can effectively pay employees, determine and deduct the appropriate taxes and social security obligations, furnish general ledger accounting records and process year-end tax reporting requirements.
How then can an outsourced payroll truly enhance the company’s competitive advantage directly or indirectly, taking cognizance of the complexity inherent in payrolls on the African continent? The following are some key factors to consider:
Greater access to human capital skills
As with any business, the highest level of skilled human capital is concentrated around that business’ core function. Due to payroll services being the primary focus of an outsourcing business, there is typically a greater level of skill residing in an outsourced payroll provider. This leads to more efficient and effective processes and procedures which in turn, decreases costly errors and creates additional value-add to the company.
In addition, the service model inherent within outsource providers means that various divisions have specialized expertise in processing, reviewing, tax, social security and a myriad other functions - companies, regardless of size, have access to all of these skills. Companies who only have a small number of employees in any country would not nesssassarly have access to these skills internally.
Greater access to better technology platforms
Payroll and HR systems have become web-based to improve visibility, security and redundancies. Employee self-service and automated claims processes have enhanced and streamlined the previous administratively burdensome manual tasks. An emerging trend is that Payroll and HR systems have merged, into integrated single database solutions which decreases duplication of work and maximizes accuracy.
In essence, payroll technology is moving at an incredibly rapid pace and outsourced providers can leverage such advancements more efficiently. They are able to identify such advancements and new trends in the industry more effectively than companies can.
Outsourced payroll companies are incentivised to ensure that they find technologies and solutions that allow them to better cater to their clients and to reduce processing time to concomitantly, increase their profit margins.
This leads to a better selection and utilisation of technology which drives efficiency for their clients.
Managing the good governance of the company
When the payroll is situated in one African country, or multiple African countries a different (and higher) level of expertise is required in order to ensure that the correct tax and statutory deductions are made, as well as the successful implementation of a control mechanism to ensure that these deductions are paid timeously to the relevant authorities.
Managing legislative compliance requires robust procedures and policies along with significant compliance capabilities. Managing the good governance of the company and ensuring they maintain the mantle of a “good corporate citizen” in the country is a vital component of any payroll function. This can best be achieved using the correct outsourcing partner - simply due to their specialisation and enhanced capabilities in this field.
Tried and tested data analysis
Business intelligence is an emerging trend and the payroll and HR databases hold a wealth of knowledge which can assist in strategic business decision making. An outsourcing partner that understands this and has the necessary skills and competence to both analyse and contextualise the data, can provide the business with valuable and accurate data to facilitate making these strategic decisions.
A drive to automation and efficiency
Most outsourced businesses work on a per payslip fee and simply put, the profit of the business can only be increased by decreasing the resources required to process the payroll. Thus, the outsourced partner is directly incentivized to maximize the automation and efficiency of, not just the system but the entire process – this streamlining and automation in turn benefits the client company by reducing the time they need to expend on providing information.
A regional capability
The implementation of a single outsourced payroll provider for all African countries is a challenge. However, the competitive advantage which accrues to a company which manages to achieve this lofty objective is great - financial controls are enhanced by having a single payroll provider with one contact and one conduit for cash flow, reporting and submitting payroll changes – a “One Touch Point solution”.
The factors mentioned above are naturally not an exhaustive list of reasons to outsource, however, they are the ones that fundamentally add to the companies’ operational efficiency and ultimately their competitive advantage. Each company is different in its make -up and complexity and it is vital that the provider chosen, is one that both understands this and is flexible enough in their approach to align their service offering to the company’s needs and requirements - and not the other way around.
The outsource division of Axiomatic Consultants was formed to address and improve the myriad difficulties experienced when running a payroll in multiple African countries. The strategic objective of the company is to provide a world class, value added service where every effort is made to customise solutions to address specific needs whilst simultaneously ensuring that such solutions are compatible with and complement the client’s goals, strategy and business objectives. Every effort is made to ensure that our offering is progressive, innovative and is designed to furnish our client with a competitive advantage in their respective industry.
To learn more about what kind of solutions Axiomatic Consultants can offer in this regard, please contact Grayson Hopkins on +27 11 305 1972 or firstname.lastname@example.org