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This bi-monthly computation of employee's salaries, bonuses and deduction is seen as a tedious, repetitive task that can get more complicated than some might think. At the heart of it, payroll processing involves two kinds of data: information about employees that doesn't change on a regular basis, such as employee number, basic salary rate and tax status, which is known as the master file; and information that changes every pay period, such as overtime pay, loans and advances, which make up the data file.

Simple enough? Maybe? What if the payroll prepare receives the data file late? Employees still have to be paid on schedule, so the preparer has no choice but to rush the payroll processing, which sometimes leads to errors in computation.

Stress

In the end, employees are irked over their incorrect net pay and payroll preparers get stressed trying to correct their hurried work. There also the dreaded annualization process for taxes and preparation of schedules of remittances to government agencies. Again, pressure is on payroll preparers to make accurate computation so the employees will not incur tax deficiencies or excesses at year end. So while payroll processing may seem rote, the sheer volume of data and the absolute need for accuracy makes it a complex and sensitive activity. This is why many businesses have opted to outsource their payroll functions. Nowadays, outsourcing your payroll functions is like dining at a restaurant. You may choose to have only an entree, or you can go the whole nine yards and simple every course available.

Large banks, for example, have been bundling free payroll processing with their other services as part of their com-on for companies to open accounts with them. These banks can take on a business entire payroll function, from processing the payroll monthly, to filing the necessary returns with the government agencies and to annualization of employees income taxes. There is a catch, though: Clients are expected to maintain a certain amount of deposits with the bank to continue enjoying the payroll processing service.

Effectively, the lower interest cost finances the cost of payroll processing. "Software as a service," or SaaS, is another option available to businesses that are interested in outsourcing. In this case, you engage a software provider to do your payroll. You simply submit your payroll data to the software professionals for encoding.

Upfront Cost

On the plus side, this arrangement minimizes a company's upfront cost of investing in software. But responsibility over the correctness of the payroll computation still rest with the company. Moreover, the SaaS option doesn't include filing of tax return and other filings with government agencies; these as well the annualization, are still handled by the company.

The more traditional outsourcing providers owns the payroll software that it uses to process the payroll of all its clients; manages the master file and ensure that updates effected; encodes the payroll data changes relative to the payroll computation; and reviews and checks the resulting payroll computation.

Annualization

The providers handles the monthly and annual filings with the government agencies. Also, the provider does the whole payroll process and filings. Payroll outsourcing has evolved over time. Companies seeking to outsource their payroll processing have also become more sophisticated and demanding. More than the cost, these companies are looking for provider that can guarantee the complete and accurate computation of their payroll, that value of confidentiality and security of their payroll information, and that are responsive to their request and concerns.

In the search for the service provider that promises all of this and more, these companies continue to sample what the market has to offer, much like a guest at a restaurant: a taste of this, a taste of that, before finally committing to a "course" that is exactly right.