First, payroll services as we think of it, is not just having someone print checks for you or setup a payroll system, it’s about having pre-identified workers put on someone else’s payroll – as employees.
For starters, the name is not very good. Perhaps it should be “employment services”. Because really, the payrollee we are talking about here is an employee of the outsourced payroll services provider, not the company where they are working.
Does that make sense, so far? If so, then the question becomes: Why would a company want to have somebody payrolled for them?
Here’s why: In many industries, there are workers, or groups of workers, who have worked for a company before, have specific skill sets the company already knows about, or are groups like interns or retirees. The bottom line is, these are people known to the company or pre-identified, who can perform work, but for certain reasons, are not going to be hired as permanent workers.
Why a company would have payrolled workers:
Efficiency and Focus for HR – Yes, we know that HR has a lot to do. And, probably fewer resources to boot. The permanent employees who are hired (or need to be hired) should be a priority, not to mention those already working for the company. Taking a part of HR’s focus away for freelance workers or short-term workers is probably not the most effective use of their time. There is no separate process that has to be developed and no confusion with their role or employment status. Even intern programs can be a drain on HR resources. Payroll management can help alleviate that.
Speed to Hire for Managers – Nothing can be more frustrating for managers than knowing who they want and then having to wait for them to go through a long on-boarding process. That’s not to say that payrollees are not screened or managers can hire whomever they want, but having a payroll management partner makes the process quick and easy (from the manager’s point of view). They call the payroll provider and in short order they have the worker they need. The payrolled worked also knows they will get paid (typically on a weekly basis) so everyone is happy.
Cost – If you calculate the cost to hire someone on, start paying for benefits, administer those benefits and all of the processing involved over the course of a worker’s first few weeks, payrolling is very cost effective. The hourly rate is the only cost involved and when the worker has finished his/her assignment, there are no unemployment costs or other trailing benefit costs. It’s also very easy to work the costs of a payrolled employee into a project, rather than headcount costs.
Payroll management has been around for a long time within managed services engagements. Most managed service providers (MSPs) provide it and for many companies it makes sense to have it rolled into their contingent labor program. But even outside a bigger program, payrolling those you already know about can be a big help to HR and a big savings for the company.