Sara Jensen, VP Business Development

In life, you get what you pay for. Whether you bought a cheap trash bag that broke on your way to the dumpster or off-brand ice cream instead of your favorite brand, you’ve probably learned this lesson firsthand.

Still, it’s tempting to skimp on quality to save money, and HR is no exception. Today, an aging workforce, increased benefit premiums, technology needs, and sustainability mandates all exert cost-cutting pressures.

But for business leaders working to create healthier, more competitive companies, low-cost payrolling services aren’t the answer. In fact, while full-service providers may cost more upfront, they pay dividends through reduced compliance costs, decreased demands on internal employees, and improved employee engagement.

Why Outsource Payrolling

Many companies make the low-cost payrolling mistake with the best of intentions. From manufacturing to the tech industry, companies save money by outsourcing the employment of their contingent workers.

By freeing internal employees of this administrative burden, companies can cut HR costs by up to 10 percent. Additionally, third-party payrolling protects businesses against the workers’ compensation claims and high unemployment insurance rates associated with this on-and-off workforce. While many try to maximize savings by selecting a bare-minimum provider, they’re often better off choosing a full-service firm.

A leading heavy truck and engine manufacturer, for instance, recently came to IES for payrolling services. In just four weeks, IES created and implemented a customized payrolling plan. The plan not only helped the company staff its global network of hundreds of workers, but it also allowed the manufacturer to better meet industry hiring standards. Because it chose IES, it’s now saving 6.5 percent — roughly $150,000 annually — compared to its previous supplier.

Save With Smarter Payrolling

Where, exactly, did the truck engine manufacturer’s savings come from? By choosing a quality payrolling service, it and other companies save money in three areas:

  • Time

Choosing a low-cost payrolling service is a lot like single-knotting your shoes. These providers might get the job done — standing in as contingent workers’ employer and handling paperwork, timekeeping, payroll, and benefits administration — but they require significantly more client intervention than a full-service provider.

Of course, high-quality payrolling providers require additional front-end investment. In exchange, however, transactions are conducted efficiently and accurately, effectively cutting down on time-wasting errors. Full-service providers build relationships with contracted workers; when employees have questions or concerns, they contact the provider directly, saving you valuable time. In the end, the time spent double-knotting your shoes pays off because you’re not constantly stopping to retie them during the race.

  • Compliance

Sure, bare-bones providers can process paperwork and cut paychecks, but can they keep up with the ever-changing employment law landscape? Sick leave laws, for instance, vary significantly by jurisdiction. While the U.S. has no federal sick leave requirements, five states, 27 cities, and one county have some type of private-sector sick leave law on the books.

Noncompliance with such laws poses pricey risks for companies that partner with low-cost providers. According to the Society of Human Resource Management, defendants spend about $85,000 in court costs for a single wrongful termination case. If they lose, jury verdicts typically award $500,000 to the plaintiff. What’s more, first-time Fair Labor Standards Act violations involve fines of up to $10,000, and repeated violations can warrant imprisonment. In many cases, the public relations nightmares stemming from these violations cost companies even more.

While reputable providers may cost more upfront, they shield clients from costly litigation by maintaining detailed documentation and tracking legislation at the local, state, and federal levels.

  • Employee satisfaction

Contingent workers are on the rise while employee engagement trends downward, putting HR leaders in a bind.

According to a Staffing Industry Analysts survey of 200 global companies, contingent workers represent 20 percent of their total workforce, up from 10 percent in 2009. By 2026, these companies expect contingent workers to represent 25 percent of their workforce.

As companies increasingly use contingent workers to fulfill their talent needs, engaging these employees becomes all the more important. Today, Gallup reports that 70 percent of U.S. workers are not engaged, and with Millennials less engaged than other generations, those numbers are likely to get worse.

With decreasing engagement and increasing contingent workers, payrolling providers bear more of the engagement burden than ever before. Yet because bare-minimum payrolling providers handle little more than paperwork and payroll, they likely don’t have the resources to build relationships with and support contingent workers. This can lead to contingent employees feeling confused, left out, and disengaged with their work.

Full-service providers, however, are responsive to contingent workers’ needs. This helps employees feel cared for and happier in their work, which reduces turnover and replacement costs. Engaged employees benefit your brand’s reputation, bringing more high-quality workers to the door.

Low-cost payrolling providers may seem like a great deal, but when you cut costs, you cut quality. Think about it: What if you were forced to slash prices by 20 percent across the board? Could you maintain the same quality of work? The same level of service and organizational efficiency? Your workers are your most valuable resource: Treat them like it by selecting a quality payrolling provider.

Sara Jensen is the vice president, business development at Innovative Employee Solutions, a leading nationwide employer of record that specializes in human relations and payroll services. Founded in 1974 in San Diego, California, IES has grown into one of the city’s largest women-owned businesses and been named one of its “Best Places to Work” for nine years in a row.

Prior to joining IES in 2011, Sarah served as director of distinguished events for the American Cancer Society. She also worked as a development resource specialist for the San Diego branch of nonprofit Social Advocates for Youth. A Washington native, Sara earned a Bachelor of Arts in communications from Western Washington University.

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