How do payroll services work?

You might be wondering how does payroll outsourcing or services work? In this article, I'll explain how it works and how it helps companies / startups in the long run. I will be specifically explain the general workings based on the rules and regulations in Malaysia.

Payroll is a process where you need to do every month if you have staff or employees. It's basically the entire process of compiling, calculating, and executing the payment of salaries to each staff. This process is usually done by a payroll manager or executive of a company. Often times, it makes more sense in "outsourcing" this portion of work to a third party. It can help companies save costs, and more. You might think, how can such a "core function" be outsourced?

To visualize it, think of the whole "Payroll process" as a department. Then, you have other departments as well such as Human Resource, Finance, Sales, Customer Service, etc etc. To outsource this "Payroll process" department, you are basically engaging a third party to run the department on your behalf. This department runs based on the inputs or instructions given by another department such as Human Resource. Sometimes, the instruction is given by the Boss/CEO himself if it's a smaller scale company. Once the Payroll Department receives the instructions, they will then compiling it, run processes and calculations, ensuring salaries are accurate, calculating statutory amounts, filling out forms, and finally outputting the Payroll Summary. They have to also abide by the rules and regulations of the Company Act and other laws to ensure the salaries are calculated correctly. Finally, once the Payroll Summary is ready, the Boss or Person in Charge (Might be from HR Department) will then approve it so that the finance department can issue out the salary payments.

Once you think of Payroll as a block/department, then you will see how it can be outsourced without affecting other departments. In fact, it might free you from the headache of handling that department so that your company can focus on your core competencies. A company shouldn't be bogged down by payroll issues, payroll mistakes, and in the case of the payroll manager leaving the company abruptly.

In fact, payroll outsourcing is becoming a trend and there are dedicated, experienced companies providing this as a service. Another benefit is, this department can most times operate remotely with the help of cloud systems. This will help reduce the companies expenses in providing office space / equipment for this Payroll Department. So there you have it, that's how payroll services work, see the diagram below for a top level view to give you a better understanding. If you wish to outsource your payroll, you may talk to us at Paysleep. We'll be more than happy to assist.

Figure - Process flow of outsourced payroll