“We can handle contractor payrolling ourselves”

Of course, you may think it would be better to let your own HR and accounting departments handle contractor payrolling. After all, they do that for your long-term employees, right? But there is a reason why there are many large banks and other organizations rely on outsourced payrolling services for their contract employees, even though these organizations have large and sophisticated accounting systems. Some of the reasons:

  • It keeps the relationship clear: With a third party handling the payrolling for contract workers, it’s more evident that the workers are contractors rather than direct employees.
  • Your systems and staff don’t get overloaded: Even in a large organization, there’s not much extra capacity in many accounting staffs and systems. Make sure to not add to their workload whenever you bring in a contract worker, and they’ll thank you for it.
  • You can focus on what you do best: It’s like any other task – it takes time to learn. Sure, you can learn to deal with all the issues regarding payrolling of contract workers, but wouldn’t you rather outsource that to someone who knows it already – so you can focus on adding value to your project?
  • Contingent relationships are different: From onboarding to payments and compliance, contingent worker relationships are different from both the internal employees and external commercial vendors that your HR and Accounting teams are used to dealing with. Having a specialist focus on these issues is an important part of avoiding mistakes.
  • Service Matters: When a problem comes up, contingent workers expect to be able to call someone and have it fixed promptly. This is especially true for issues that affect payments for services, however in a traditional HR or Accounting support group, this is not easily done.

“It’ll cost less if we keep it in-house”

Yes, there are fees associated with outsourced payrolling services. But it’s also true that keeping this work internal also has costs, many of which are hidden costs and potentially greater than the cost of outsourcing.

  • Added burden on your accounting staff: As we said above, the time your own staff spend on payrolling for contract workers is time they are not spending on their usual work.
  • New tasks to learn: If you hire and pay your contract workers direct, someone in your organization has to get good at this task. This includes avoiding the downsides, which can include overpayment, misclassification, and the risk of hiring someone not legally in position to work.
  • Handling variations in usage: Contingent workforce is by its nature flexible, and many organizations that do this work internally are challenged to manage periods of quick growth or declines in the size of its contingent workforce, and preserve the accuracy of onboarding/offboarding tasks, compliance processes and payments.
  • Different Service levels: Many organizations are challenged to match outsourced payroll offerings, including rate negotiation, classification processes and document checks as these steps aren’t part of their normal work performed by their Accounting or vendor management groups. These difference can have an important impact on total cost or total risk between the two approaches.
  • Changing legislation: Contingent worker engagements are governed by a wide landscape of local and federal legislation, which is constantly evolving with court decisions or legal updates. Staying on top of these changing requirement is a full time job.

Contractor pay rates are typically 10 to 15% higher when sourced directly, rather than through a competitive channel.

“We can manage the risks of paying contractors directly”

Any business involves risk, and you may believe that handling payrolling for contract workers fits into the range of “acceptable risk.” But consider the risks you’re retaining: that you’ll miss an aspect of the Onboarding process such as hiring an unqualified worker, paying too much, or that payments to the worker will go astray.

As well, you may be running the risk of hiring someone who has been found to be seriously unsatisfactory before, and to have been blacklisted by many organizations who have worked with this person. Your payrolling services provider maintains a list of such people.

Sourcing contractor payrolling services from a qualified, experienced service provider not only helps reduce the chance of bad things happening, it insulates you and your company from potential problems.

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