5 reasons decentralized payroll costs you more than you think

Bearded man counting money doing payroll

Navigating the (almost) post-pandemic climate poses a number of challenges to all businesses, the most important being keeping your finances afloat without having to reduce your workforce. In fact, according to Forbes Councils member John Schwarz, it might be the worst way to handle a recession, as, on top of driving your remaining employees close to burnout, it also brings the added challenge of an untrained workforce.

What to do then, for global businesses that need every iota of talent they helped develop and train to stay, while finding ways to optimize resources? A solid first step is centralising your payroll. While you may argue that decentralising your payroll is cheaper and leaves you with a certain leeway, doing so will cost you more than you think. Here’s how:

1. Keeping up with different contacts will cost your staff precious time

While you may be looking forward to lightening your staff’s workload to gain efficiency, and choose the more affordable option of different payroll organisations to service each country, this is where decentralised payroll backfires.

 

With different service providers, comes the need for internal staff to communicate with each vendor from each country, implement the necessary follow-up processes and make time for these interactions, which costs them considerable time and energy, and in turn, costs you money.

2. Internal payroll will cost you either through overstaffing or IT investment

If your ideal model of decentralised payroll means creating an internal department in each of your company’s country branches, the pivotal nature of this function requires hiring employees, as well as a replacement staff to discharge the essential duties if the main employee is absent, which inevitably results in over-staffing.

 

Of course, to remedy this resource-consuming problem, many digital platforms make payroll easier and more readily accessible if someone is off-site. However, these technologies come with a hefty price tag that is often far out of the budget of a small company, with the added cost of training each employee to use the software.

3. The cost of non-compliance comes in fines

Compliance risk is multiplied for any global company. Not only must you respect the laws of every country – you must also be able to keep up with the new and changing amendments and reforms. In South Africa, for instance, the Income Tax Act exempted emoluments for long service (under R 5000) from the definition of “gross income” as per the South African Government Gazette of January 2022. Whether it implies new deadlines for fees, or new reporting or registration standards, failing to adapt your processes will be sanctioned by fines.

 

Conversely, hiring adequate staff in every country to handle this task will cost you much more (with the added disadvantage of extensive communication because of the different contacts in each entity) than hiring a dedicated payroll service provider.

 

4. Payroll fraud will cost you time and money

Bias and personal interest are the major risks of delegating payroll to local branches, as compared to centralising payroll processing with an independent professional organisation. As a global business, you will not be able to monitor office politics as closely, which is precisely the point of delegating tasks.

However, in the unfortunate event of fraudulent payroll managers generating more salaries than you actually have registered employees in a specific branch, to genuine errors of cutting ex-employees off the system, or even managers enabling employees to padding hours or purposefully inflating their timesheets, your business will stand to bear the costs.

The independence of a unified payroll service provider is a priceless tool in conducting the key function that is payroll. Indeed, above and beyond settling payments, you want your payroll management company to come up with objective evaluations of productivity as compared to expenditure, and detect any anomalies promptly, and uproot problems before they branch out.

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5. Errors and miscalculation might drain your resources

Should you choose to contract with the most competitive local payroll service provider in each country, you would still, in practice, be paying unnecessary costs. As professional payroll providers need a number of software and digital tools, you would be paying the cost of multiple licences and updates instead of a single one. Most importantly, dealing with different platforms and standards inevitably increases the risk of error.

 

In contrast, investing in internal payroll staff for that function will leave you with fewer resources than you would dispose of with a professional payroll service provider, leaving a wide margin for human error – one of the biggest would be overpay. If underpaying costs you employee experience and talent (which are, nonetheless, rectifiable solutions), overpaying, if it is not detected on time, represents costs that can often only be recouped through court proceedings, if at all.

For your payroll outsourcing needs, think Africa HR Solutions

As a unified professional payroll service provider, Africa HR combines fail-proof cloud technology with the experience of professional staff with high ethos to deliver a comprehensive range of payroll functions: from preparing a payroll calendar to generating custom reports and handling medical insurance and other benefits, we are the central point of contact that also allows you to save on technology, besides offering attractive benefits  packages, thanks to economies of scale, via our trustworthy vendors.

Your journey to Africa with us starts here!

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