In-house, SaaS, outsourcing: What’s the best for payroll?

Payroll technology is changing. There seem to be so many ways to deliver software these days, so what’s the difference and how might they work best for you?

In-house

This is where the software resides on your company computers and is accessed over your network or on a stand-alone machine. The client maintains responsibility for maintaining the system database and managing the upgrade process. Typically, you will have a help desk facility to call on for any issues you have with either the software or the configuration of the system.

The customer is responsible for data backup as well as managing their payroll processing.

Generally, customers will pay an up-front software licence fee and then pay an annual maintenance fee which covers software support.

Software as a service (SaaS)

Also referred to as On Demand, SaaS is a distribution model in which software applications are hosted off site and made available to customers over a network, typically the internet. This type of service can also be called hosted payroll.

There are various pricing models; however, generally the software vendor licenses the customer through a subscription in a ‘pay as you go’ or ‘pay per click’ model. More payroll vendors are delivering this model to suit small employers.

With a SaaS model, the payroll software vendor is responsible for data backup and managing software upgrades, while the customer manages their employee database and payroll processing.

For a SaaS delivery model, the responsibilities are:

Payroll outsourcing

These days, employers are able to fully or partially outsource their payroll process. For example, some companies choose to outsource the execution of the bank transfer and printing of payslips, but manage the rest of the function on an in-house basis. Other organisations choose to have the vendor run the entire payroll processing from data entry to payroll outputs.

It’s important to note that just because you outsource your payroll function, does not mean you outsource your employment responsibilities. The onus is still on the employer to remain compliant.

Business process outsourcing (BPO)

Also referred to as fully managed payroll services, BPO is a service which enables customers to eliminate their payroll office by having the vendor run a virtual pay office. All payroll queries would be handled by the vendor and there is typically no need to have a payroll subject matter expert on staff. This isn’t a popular service in Australia due to the complexity of our payroll environment and the risks and fines of getting payroll wrong.

Proprietary systems

Although this is getting less common as payroll legislation becomes more complex and fines for non-compliance grow, some companies develop, support and maintain their own payroll systems. The reason this is becoming less common is due to the high cost of keeping these systems operational.

If you have any topics you’d like me to cover in future blog posts, please get in touch with me at tracy@austpayroll.com.au