I was asked to compile evidence on the benefits and dangers of outsourcing the payroll function of Sony Canada Inc. as a part of the budget review this year. Since letting an outside company manage payrolls may be a viable option to improve the efficiency of company management and reduce costs of the matter, a thorough analysis was needed to outline all the pros and cons of the practice. The present report demonstrates that even though the endeavor promises improved cost efficiency in the long-term perspective, the company should consider the option with caution due data security concerns.
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The primary advantage of outsourcing payroll services is the reduction of spending on the function. According to Madhavi, a company can lower the cost of managing payrolls by up to 50% (191). However, this is mostly true for smaller organizations, and in the case of our company, the savings are expected to be much less. Cost efficiency remains the major reason to consider the option of letting an outside company handle the matter.
Another benefit of outsourcing the payroll function is evading IRS penalties for errors. According to Madhavi, the right service provider is less likely to make a serious error rather than in-house staff (191). Since Sony Canada Inc. is legitimately answerable for any case of intentional or non-intentional falsification or failure to report precise information about the employees’ taxes, any mistakes in the matter may lead to significant financial and legal penalties. In case of errors of an outside organization, the company can file a complaint and pay the penalties at the expense of the service provider.
As for the downside of the matter, the company will be forced to share privacy-sensitive information with a third party. Such sharing is usually associated with increased risks of security breaches. If private information is exposed, Sony Canada Inc. will suffer significant legal and image-related issues. However, the chance of such an event may be negated by choosing the best payroll service provider on the market.
Another concern is the transition period from in-house to outsourced payroll. It will be a costly matter, since for 3-6 months, the company will need to pay to both the outsource company and the staff. The first step will be to create a document of “legacy” system thorough description. Second, establish clear parameters of data transfer, which will require additional assistance of IT staff. Third, the new system will need to be tested and results will be reviewed. Lastly, the in-house employees will have to be dealt with, which means additional spending on contract cancellation.
Should you need more information about this recommendation, do not hesitate to contact me.
Madhavi, Venu. “A Conceptual Framework on HR Outsourcing, with Special Reference to Payroll Outsourcing.” 2nd International Conference on Evidence Based Management, Birla Institute of Technology & Science Department of Management, 2017.
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