14.06.2023 HR and Payroll outsourcing

HR and payroll outsourcing – how to sign a successful contract with a service provider?

Achieving the intended benefits of HR and payroll outsourcing depends, inter alia, on a well-signed contract. Appropriate provisions, considering the needs and expectations of a company, as well as precise definition of the scope of the outsourcer’s activities and responsibilities are the key to the success of effective service implementation and satisfactory, long-term cooperation with the service provider.

The appropriate drafting of the contract for HR and payroll services by an external company protects against risks and allows to avoid many disappointments and potential financial losses. In the article below, we suggest what elements should be included in a contract with a provider of HR and payroll services and what to pay special attention to when constructing it.

HR and payroll services: what should a service provider contract contain?

The contract for HR and payroll outsourcing should consist of the following elements:

  1. Range of services
  2. Responsibility of the service provider
  3. Service provider financial responsibility
  4. Data security and confidentiality records
  5. Place of service provision
  6. Specified start date of cooperation
  7. The schedule for the provision of the services provided
  8. The amount of the outsourcer’s remuneration
  9. Duration of the contract
  10. Deadline and costs of termination of the contract
  11. Additional clauses
  12. Rules for annexing the contract

With whom and how to determine the scope of HR and payroll outsourcing services?

Should the scope of the contract for HR and payroll services be defined by the legal department? Nothing could be more wrong. The agreement should be consulted and drafted in the first place by experts, as they know the specifics of HR and payroll activities best.

It is therefore good market practice to start discussions on the scope of the contract by the persons with expertise both on the client side and the service provider side. Only after the initial contract framework has been defined, the legal department is to be involved in the process.

What is usually covered by the HR and payroll outsourcing service?

During talks with the provider of HR and payroll services, it is worth specifying the scope of the basic service as precisely as possible. This will avoid misunderstandings and unplanned costs.

The basic scope of services in the area of HR and payroll usually includes the following elements:

  • payroll calculation
  • HR administration
  • employee e-files
  • working time accounting
  • ZUS settlements
  • PIT declarations
  • accounting reports
  • GUS statements

When comparing offers from different service providers, it is worth making sure what exactly is included in the basic scope of the service, and which activities will be charged extra.

Responsibilities of the HR and payroll service provider

A properly drafted contract for the provision of HR and payroll outsourcing services should also include the supplier’s scope of responsibility. This increases the client’s safety and avoids financial and image losses, e.g. in the event of errors in the calculation of remuneration.

The service provider should be responsible for, inter alia:

1. correct and timely calculation of remunerations

2. keeping personal files in accordance with the law

3. information security

4. compliance with GDPR and other regulations

Financial liability provisions

Our experts also recommend including provisions on financial liability in the contract with the provider of HR and payroll services. These may include, for example, the correctness of the data received, the correctness of calculations and compliance with regulations. If a mistake is made, it will be the provider of the erroneous information that will be held financially responsible for the resulting losses.

Confidentiality and security of data processing

The process of data migration to the service provider is an extremely critical process. Data security and confidentiality should be a priority. An encrypted electronic channel to which no one except the ordering party and the service provider has access is a secure solution for data transfer. Data migration should also be compliant with the legislation, including GDPR. Data leakage can cause financial losses and legal problems.

What additional services are worth purchasing from a HR and payroll outsourcing provider?

In addition to basic HR and payroll services, outsourcers often offer a number of additional services, examples of which are presented below:

  • handling employee benefits
  • sending documents directly to employees
  • preparation of earnings certificates on standard forms and bank forms
  • preparation of the GUS Z-12 report
  • PUE administration
  • PPK administration
  • preparation of non-standard reports, including the ones for audit purposes
  • s handling bailiff seizures

Place of providing HR and payroll services and date of starting cooperation

The contract with the HR and payroll outsourcer should also specify the place of service provision. They can be carried out at the client’s premises or at the provider’s ones.

It is also important to precisely define the date of starting cooperation. A previously prepared work schedule will significantly improve the process of implementing HR and payroll services.

Service delivery schedule

Another important element of the contract with the service provider to whom we entrust HR and payroll services is the cooperation schedule. It facilitates the work of both parties and avoids misunderstandings. The schedule should specify:

  1. data transfer deadlines
  2. deadlines for reporting changes in remuneration
  3. accrual schedule (e.g. first and final accruals)

Remuneration of the payroll service provider

An essential element of the contract with the outsourcer is, of course, the provision on the remuneration. It usually consists of the following elements:

  • The cost of implementing the service
  • Basic monthly fee
  • Service charges at the end of the year
  • Charges for additional services

The basic remuneration depends on the number of employees, the employment structure and the scope of the service. The base part also includes the cost of the license for using the system provided by the outsourcer.

Learn more: What is the cost of HR and payroll outsourcing?

Duration of the contract as well as costs and termination date

As with any contract, the duration of the contract and the rules for its termination should also be specified. In a situation in which the contract is terminated, it may be problematic to migrate data – back to the client or to a new service provider. For this reason, it is worth including provisions on how to prepare data at the end of cooperation, along with the schedule of this process.

Additional clauses and rules for annexing the contract

It is worth considering including additional clauses in the contract with the outsourcer, which will more effectively protect the company’s interest and avoid many problems. Examples of additional clauses:

  1. a clause prohibiting the employment of the other party’s employees (e.g. introducing compensation for employing an employee)
  2. a clause on settling disputes and conflicts (e.g. settling any disputes amicably)

The contract with the provider of HR and payroll services should also specify the methods of agreeing and implementing changes. This will facilitate and streamline any contract modifications. Thanks to such provisions, both parties will know which changes require an annex and which can be introduced with the consent of an authorized person.

A properly drafted contract for HR and payroll services is the key to fruitful cooperation with an outsourcer. A good contract should define in as much detail as possible the scope of services and responsibilities of the supplier and the timetable for their implementation. Thanks to the proper contract, the client can protect oneself against many risks and avoid disappointments and costly problems.

We encourage to watch the recording of our webinar, during which we suggest what is worth paying attention to when choosing a provider of HR and payroll services, as well as what is important during further ongoing cooperation.

Learn more: HR and payroll outsourcing – step by step

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