HR and payroll outsourcing – step by step

HR and payroll outsourcing means entrusting the administration of the so-called hard HR processes to an external company. This service aims at streamlining operations in this area and reducing the operational costs. How to get ready for HR and payroll outsourcing and what should you pay attention to?

HR and payroll outsourcing – first step?

Outsourcing (outside-resource-using) involves hiring an external company to perform business processes. When it comes to HR and payroll outsourcing, these are the broadly defined activities related to the ongoing HR and payroll services for the employees of a given entity, including, among others:

The most important benefits for companies outsourcing human resources and payroll are the access to knowledge, know-how and resources of the service provider, data security and process continuity assurance, optimisation of HR and payroll costs and the opportunity to use the cutting-edge technologies supporting process optimisation.

The decision to outsource HR and payroll processes should be preceded by:

• an in-depth financial analysis of the operating costs of internal human resources and payroll departments whose tasks the company plans to outsource,
• preparing a list of activities and operations that could potentially be outsourced,
• identification of the benefits and risks of outsourcing HR and payroll, i.e. SWOT analysis,
• an audit of the company’s existing HR and payroll structures.

A key step is to choose a service provider which not only provides a range of services tailored to the company’s needs, but also ensures high quality and an appropriate level of process security.

Selection of an HR and payroll outsourcer and signing a contract

The selection of an outsourcer should be the result of a multidimensional analysis of potential partners. In most cases, payroll and HR outsourcing is of a long-term nature, therefore a wrong decision may prove costly for a company, not only in financial terms.

HR and payroll outsourcing – what to consider when choosing service provider?

After sending and analysing tender requests and drawing up the so-called short list of providers it is time to finally select an outsourcing partner and sign a – usually long-term – contract for the provision of HR and payroll services.

Signing a contract – what to look out for?

Signing a contract with a service provider is a key moment of the whole process. The success of the cooperation and enforcement of mutual arrangements depend on the provisions set out therein.

What are the key elements of an HR and payroll outsourcing contract:

• Scope of services provided – it is important to define as precisely as possible the package of services provided under the contract,
• Liability of the parties – it is extremely important to establish the outsourcer’s liability, for if there are any institutional audits, the outsourcer is liable for any irregularities,
• Data and information confidentiality and security of processing – it is important to follow current legislation, clearly defined rules and monitoring of the service provider in this regard,
• Optional services, i.e. services for which there is an additional charge; these may significantly increase costs, so it is crucial to carefully define the subject matter of the contract and draw up a list of additional services,
• Place of supply of services and specified date of commencement of cooperation,
• Delivery schedule for the services provided,
• The outsourcer’s remuneration and the provision on contractual penalties,
• Contract duration and costs and termination date, i.e. notice period and exit cost,
• Non-employment clause of the other party’s employees,
• Clause on the settlement of potential disputes and conflicts,
• Rules for annexing a contract – important if you need to amend and renegotiate its terms.

The conclusion of a contract with an outsourcer requires the establishment and clarification of many issues. Therefore, it is usually preceded by negotiations involving persons responsible for particular processes and often also the legal department members.

Cooperation with an HR and payroll outsourcer – a win-win situation and further development

Good communication and mutual cooperation are the foundations of a successful outsourcing model. And it is no different when it comes to HR and payroll outsourcing. This is because what counts most here is mutual trust and knowledge sharing. The precise definition of needs and high flexibility of both entities play an important role in building long-lasting relations.

However, the quality of services and effective cooperation depend above all on constant monitoring of processes and adjusting to the client’s needs, as well as quick reactions to both existing and upcoming changes. The key is also to develop an efficient communication system. This will help to develop an optimal model of cooperation and achieve the assumed business objectives by both contractual parties.

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