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In the early 1970’s, when the first outsourced payroll companies emerged, we imagine that the debate immediately started regarding whether outsourcing a payroll was better than insourcing (running the payroll in-house).

This debate has raged ever since and a significant number of articles promoting either option have been written; when Googling “payroll outsourcing versus insourcing”, there are 227,000 results. While one could argue that outsourcing is relatively inflexible, by the same token, in-house personnel often lack the tax experience in complex jurisdictions like Africa. Argument and counter argument can be made ad infinitum.

There is no generic correct answer and/or better option – it depends on the company and their specific needs, requirements and circumstances.

The Goldman Sachs analysis for the American Payroll Association, found that the prevalence of outsourcing decreases as the number of employees increases – refer to the chart below. Larger companies can afford to spend significant sums on payroll systems. Whether cost savings or increased efficiency is obtained is unknown. However, in the in/outsourcing argument this inverse correlation appears to be the only quantifiable fact.

Estimated Insourcing Vs Outsourcing Graph

Axiomatic Consultants currently provide both insourcing and outsourcing options to clients in 42 African countries and the Covid-19 crisis has furnished us with some interesting and enlightening insights into the in/outsourcing debate.

  • Companies can no longer afford to run payroll platforms that are not cloud-based. In the “next normal” way of working, which involves remote working, one cannot and should not expect payroll personnel to go to the office because they must log into a server or apply certain updates. This is certainly something that is easily achieved in an insourced model; however, the outsourcing industry does tend to have faster adoption due to the business model relying on technology to increase efficiencies.
  • Many companies are ill equipped to operate remotely which may lead to delays in pay-day or costly mistakes being made. Most outsourced payroll providers have been able to function effectively during the pandemic – contingency planning, back up facilities and disaster recovery management is a prerequisite risk management tool of such companies. Companies currently outsourcing their payrolls have had the luxury of focussing on their core business during the crisis and have not had to worry about the administrative payroll process.
  • The raft of Covid-19 related legislative changes made by the various African governments were immediate – the measures became effective in the next payroll cycle. Many companies running insourced platforms were not able to make such changes or were perhaps unaware of the changes. Outsourced payroll providers were able to manage these circumstances more effectively due to awareness, a robust process to identify legislative changes and in-depth tax knowledge.
  • The disruption to normal business during the crisis meant that payroll had to be flexible and be capable of incorporating late changes. Outsourced payrolls have strict submission deadlines which resulted in backdating in subsequent months.

Perhaps the most valuable lesson we learnt was the efficiency obtained where a hybrid model was employed by a company – some payrolls are insourced, while others are outsourced but where all payrolls used a common true cloud technology platform. Where the company experienced problems with an insourced payroll for a myriad reason, this was immediately “transferred” to an outsourcing model. Axiomatic offers both models and we simply took over the running of the insourced payroll until the problem was resolved.

Have your cake and eat it tooThis arrangement is almost like having a free insurance policy, a free put option or a golden parachute which leads to a seamless transition between the two models to ensure employees do not experience any delays to their pay.

Dare we say- this is like having your cake and eating it.

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