Demystifying myths behind payroll and HR outsourcing for SMEs

IF there is one area that the pandemic has changed significantly for small medium enterprise (SME) businesses, it is in workforce management.

Since the pandemic began, companies everywhere have to either implement work-from-home policies due to lockdowns or adopt new ways of managing resources to ensure uninterrupted productivity.

The human resource (HR) department has added responsibility now to ensure they keep abreast with the latest information of wage subsidies and hiring incentives announced by the government in addition to ensuring employees comply with the relevant standard operating procedures (SOPs) to create a safe and healthy working environment.

Most SMEs would typically rely on one or two admin executives to handle their HR or payroll matters. Many do not think it is necessary to hire a dedicated and skilled HR person.

While HR administrative paperwork may not be a challenge for the admin staff, what happens when there are disputes or claims by employees that goes beyond the know-how of the admin person or the SME business owner?

A channel often unexplored by SMEs is outsourcing such task to a payroll or HR agency. SMEs are often hesitant to explore this avenue due to the underlying myths of outsourcing.

Khoo Siew Ling

The three myths

1. It is cheaper to D-I-Y than to outsource

One of the myths behind any type of outsourcing is that it is expensive. Typically, SMEs would prefer to hire people who can multi-task. Therefore, many HR staff wear several hats in the company such as admin or finance.

However, SMEs should take into consideration of the cost when they are faced with new HR issues or payroll policies – when there are constant changes in regulations or newly announce incentives by the Government or work practices, especially during this pandemic.

While payroll processing may appear routine, this critical task can be time-consuming and complicated. Having to keep track of employees who are working remotely on their overtime, shift hours or unpaid leave in compliance with regulation changes can be frustrating. Moreover, penalties for payroll mistakes, omissions or late payroll tax filings can be costly.

Fact: Outsourcing payroll frees up precious time for SMEs to focus on their core business, especially during this challenging economy. In addition, a payroll or HR agency with a depth of experience can offer useful perspective to help SMEs attract, recruit and retain employees.

However, SMEs need to balance what they can afford with what the company needs before they consider outsourcing by evaluating the below:

  • What is the total headcount in the company?
  • How many people are tasked with handling HR or payroll in the organisation?
  • Is the HR employee also tasked with other non-HR work, hence, only have limited knowledge in some of the tasks assigned?
  • What is the greatest HR challenge in the company? Will outsourcing payroll help save time so the team can focus on core issues that have a direct impact on the business?

2. It is difficult to maintain data confidentiality with outsourcing

Another prevalent myth behind payroll and HR outsourcing is that confidentiality of HR data might be exposed to outsiders. Some companies are uncomfortable to reveal their payroll to an outsourced HR person.

Fact: With cloud-based systems and flexibility in payroll or HR outsourcing models now, SMEs can explore the option of outsourcing specific areas to technology or to qualified consultants.

There are also strict non-disclosure agreements (NDAs) and service level agreements (SLAs) to ensure the service provider keeps the data in the strictest confidence.

3. There may be delays in getting response and support

Some believe that outsourcing an important role such as HR may cause them to have less control over their own HR or if issues arise, they may not get the support and response needed promptly.

Fact: It is important to first identify the areas internal HR or payroll team can manage internally as well as the ones which they have less exposure and experience in, and which can benefit from an outsourced help from experts. An alternative is to have the outsourced HR or payroll resource based at the client’s office either on full time or part-time basis depending on the company’s needs, work volume and budget.

In addition, with cloud-based HRM systems, employees can access their own payslips, claim balances and information on entitlements without having to check with a HR person.

SME business owners constantly need to strive to grow their business while managing a tight budget. By outsourcing HR, they can at least be assured that their most valuable asset – their human resources – are in good hands. – Aug 18, 2021


Khoo Siew Ling is the CEO of MyWave Sdn Bhd, a company 25% owned by MAVCAP (Malaysia Venture Capital Management Bhd). 70% of MYWave’s customers are multinational companies who rely on MYWave’s cloud-based HR platform (Emplx) which is also suitable for SMEs.

The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.

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