6 Benefits of Payroll Outsourcing when expanding in Africa
Many may argue that money doesn’t buy happiness, and while this may be true, it is still a major factor in an employment relationship. Successful employment relationships are built on trust, and if businesses do not appropriately execute a foundational requirement, such as paying people on time, it impacts employee morale and their sense of trust in the employer. Thus, it is essential to focus on how to make sure that payroll is done accurately, timeously and in a compliant manner.
Due to the business importance of getting payroll right, payroll functions are often outsourced to an external provider. This is particularly evident when a company expands their operations globally. But why is this? Why are companies so comfortable trusting a service provider with such a crucial part of their internal operations?
Read on to find out why companies choose to outsource payroll and discover the benefits that your business may be missing out on.
What is Payroll?
At its core, payroll is essentially concerned with compensating employees for work done. This involves processing payments to employees as well as contractors in a timely, consistent, and effective manner. All these procedures must be carried out in line with local regulations and labour laws, which vary – sometimes drastically – from country to country. A company expanding on the African continent needs to be wary of how they manage their payroll, as there is a lot of room for error and non-compliance due to complicated tax and labour legislation.
Simplistically, payroll can be thought of as the following equation:
Gross Salary – (deductions and taxes) = Employee Net Pay
What is payroll outsourcing?
Due to the difficulties associated with operating payroll for a global workforce, companies operating on a global scale often outsource their payroll to an Employer of Record company.
An Employer of Record (EOR) is a third-party organisation that acts as a registered employer and provides a legal framework to ensure compliance and thus reduce the risks associated with HR functions.
5 benefits of payroll outsourcing for your business
The benefits associated with outsourcing your payroll process can be broken down into immediate and long-term benefits, as seen in the visual below.
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Immediate benefit: Cost-effectiveness
Surprisingly, administering payroll in-house is often costlier than paying a third-party service provider to manage it. This is because when expanding into different countries (particularly African countries), there is a need to train and set up a specialised team with specialist software to manage the payroll process. Further, given the complex legislation in many African countries, payroll consultants must quickly become industry experts to prevent costly mistakes or late payments.
If, for example, a company is simultaneously expanding into Madagascar, Algeria and Ghana, an in-house payroll team will need to be set up for each of these new areas. Establishing this function per country will be expensive due to associated setup, training and maintenance costs. By contracting with an Employer of Record, the company is entrusting the processing of payroll to an already established, trained and fully equipped team with the right hardware and software, and they can process your payroll needs instantly.
Further, payroll consultants at a EOR such as Africa HR Solutions are specialised experts in their countries of focus, thus ensuring that payroll is managed at the highest level of accuracy.
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Immediate benefit: Time-saving
Processing payroll is both a time-intensive and time-sensitive matter. There are many fluctuating and dynamic factors to consider, including hours worked, leave taken, bonuses and various deductions. Accurate data entry and recording are essential to ensure fair compensation in accordance with local labour laws.
Each African country also has its own specificities that make payroll a more complicated and lengthy process. In South Africa, for example, overtime can be paid in two ways: either by financial compensation or by giving the employee paid time off proportional to the extra time worked. If for a given month, an employee wishes to be paid for 2 hours of overtime and wishes to take time off for the other 2 hours of overtime worked, this significantly adds on to the work that must be done by the payroll team.
Considering the time and effort that payroll requires from all involved, outsourcing to an Employer of Record may be the most effective solution to reduce the intense administration required from employees, who have more time to add value to their teams and ultimately the organisation.
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Long-term benefit: Core business focus
Outsourcing payroll processes immediately benefits an organisation by reducing overall financial investment and by offering time back to its employees. Both of these benefits reduce the current employees’ workload, allowing them to focus on the profit-generation portion of their roles, rather than labourious administration. Outsourcing payroll is a smart way of ensuring that employees’ time and skills are used where they are most needed.
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Immediate benefit: Compliance with local regulatory frameworks
One crucial characteristic of a good payroll system is consultants having a thorough knowledge of local labour laws. These laws vary significantly from country to country across the African continent.
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All these small details add up to create a vast amount of information that must be assimilated by a payroll team. Understandably, this may prove to be challenging for an in-house team to completely master, particularly if an organisation is simultaneously expanding in several different countries. Therefore, the services of an expert payroll service provider are often preferred, as they manage this information to run an organisation’s payroll process accurately.
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Short-term benefit: Payroll expertise
Payroll is a complex process to navigate and requires not just the theoretical knowledge of local legislation, but also an intimate practical understanding of the correct steps and actions to take when setting up and executing a payroll run. This level of expertise can only be acquired through years of training and experience in the field. Partnering with an expert payroll practitioner ensures high-quality expertise in the payroll systems utilised and an efficient turnaround time throughout the process.
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Long-term benefit: Risk mitigation
In the long-term, partnering with a team who understands local legislation and required governance procedures, as well as having expertise in the processing of payroll, mitigates a company’s risk of poor practice in their areas of expansion. This protects employers from costly penalties, as well as creating a positive and trusting employment relationship with the employees.
How Africa HR Solutions can help your business during its expansion
Payroll can be a lengthy and complex process to carry out in-house – one that can add on to employees’ already heavy workload as a business expands to new markets across Africa. HR and finance departments can greatly benefit from outsourcing a resource-intensive task, such as payroll, to trusted professionals at Africa HR Solutions. With over 25 years’ experience assisting businesses with their payroll needs across 40 African countries, Africa HR Solutions enjoys a solid reputation as a reliable payroll and HR partner. Africa HR Solutions manages all aspects of payroll for an organisation and prioritises relationships with their clients through a dedicated key account manager. We at Africa HR Solutions want to help your business succeed and are committed to providing consistent, high-quality service.
