Why Should You Outsource Your Accounting and Payroll

outsourcing-task-imgMost business owners tend to do all the work themselves during the beginning stages of their business. However, time is something business owners just seem to lack. When it comes to administrative tasks, it is best to outsource them to a professional. As professionals in the accounting and human resources fields, we believe in borrowing the strengths of others where it is best and exerting all efforts into one’s own strengths. Because of this, we propose to foreign companies in Japan to outsource their accounting, payroll, and even payment processing tasks. Outsourcing can provide many benefits to your business, which we will enumerate below.

  • About Outsourcing

    Outsourcing is the act of contracting a company or an individual to perform non-core tasks for your business . Before outsourcing a task, it is best to think about whether it is better to ask your own staff or employees to perform a task or not.

    Outsourcing is often considered synonymous to “offshoring”, although these two are actually different from each other. Offshoring involves establishing a subsidiary in a different country (hence, “offshore”) that would incur less cost (e.g. wages) and relocating business processes such as accounting and payroll to that subsidiary. As offshoring is essentially still an entity a business owner would manage, this makes it different from outsourcing where another entity or individual handles the task on the business owner’s behalf.

  • Typical benefits of outsourcing

    Here we introduce the five of outsourcing’s typical benefits.

    • (a) Reduces costs

      By outsourcing business processes such as accounting, payroll calculation, and payment processing, costs on employee wages, taxes, and legal welfare (social insurance) can be reduced. With Japan’s shrinking workforce, securing fitting staff, as well as training them, has increased in cost. We will discuss more about how outsourcing can reduce costs later in this article.

    • (b) Saves time

      By assigning business processes to professionals who can perform such tasks immediately, your own administrative staff can work on other tasks at hand. This approach can greatly save time, as your employees can focus on more high-value tasks (such as those that cannot be outsourced) critical to your company’s performance.

    • (c) Increased quality

      In Japan, there are a variety of licenses that one can earn for different specializations. Some licensed professionals include certified public accountant, certified public tax accountants, certified labor and social insurance consultants, among others. Being able to tap into a skilled workforce such as certified professionals is an irreplaceable asset. Outsourcing business processes like accounting and payroll calculation to professionals in that field can greatly increase the quality of output.

    • (d) Risk management

      While it is important for enterprises to abide by the tax laws and other regulations in Japan, foreign enterprises may find this difficult to do on their own. By outsourcing processes such as accounting and payroll calculation to firms that employ certified employees and professionals, the risk of non-compliance with laws and regulations decreases. We will discuss more about how outsourcing can reduce risks later in this article.

    • (e) Customized services

      A company that performs accounting and payroll tasks on a daily basis is sure to have gained a lot of knowledge about how these processes flow. With their knowledge, they can offer the best possible combination of software, language, reporting format and method, among others, to meet the needs of their clients. This results in less stress for the business owner when it comes to outsourcing their business processes.

  • Benefits from a cost reduction perspective

    Recent years have seen an increase in intense competition in the business environment. For this reason, management departments have added focus on reducing costs incurred by their company. Learn how clients can save money when using packaged outsourcing services that include accounting, tax, payroll, social and labor insurance procedures, and payment processing.

    Flow of Outsourced Work

    • Enter accounting, payroll, and payment data
      Data is obtained through e-mail, shared folders, mail, or received on-site
    • Close books for the month for bookkeeping, etc.
      Proper recording and saving of data with accounting software
    • Calculating of payroll (including social insurance and withheld income tax)
      Proper computation of salaries and taxes due based on existing regulations in Japan
    • Process payments (to vendors, staff, and taxes)
      Helps prevent errors, as well as doubled or late payments
    • Report accounting information to head company/office
      Contact with the head office is possible, as well as giving of professional advise or feedback

    How much can we save?

    The examples below are from when our firm supported foreign companies in Japan.

    The case of a Japanese subsidiary of a tech company headquartered in Munich. Comprises of the president of the subsidiary, a sales manager and several sales staff.

    According to the administrative department, to be able to employ an accounting manager and HR manager who are both fluent in English, they would need at least 8 million and 6 million Japanese yen, respectively, on an annual basis (these figures may be higher in reality considering today’s labor market). An additional 4 million yen would also be needed annually for a staff who will be in-charge of processing payments. This brings the total to approx. 18 million in annual wages alone.

    Cost-comparison

    On the other hand, the accounting, payroll, and payment processing services we offer are generally priced at 4 million, 2 million, and 2 million respectively, for a total of approx. 8,000,000 (tax exclusive) JPY annually.

    Looking at the figures above, though rounded off for convenience, it shows savings of approx. 10,000,000 JPY annually. Not only did the business save on costs, it also received satisfactory services.

    Considering that the values above do not include company portions of social insurance premiums, benefits, computers, office supplies such as desks and chairs, and employment expenses yet, we can safely say that the difference between hiring employees and outsourcing tasks can save your business a lot on cost.

  • Benefits from a risk management perspective

    As indicated above, there is also the benefit of less risk in addition to lowered costs when business processes are outsourced. We will explain further what these risks are in this section.

    Benefits-from-a-risk-management

    To establish an effective internal control system, it is important for the people doing the cash management and payment processing tasks to be different from the people doing the accounting and reporting. For this, at least two employees must then be hired by the company. Not only would this mean having to pay around 1 million JPY in monthly wages, but it also does not mitigate any risks.

    Outsourcing services such as Shiodome Partners would instead appoint its own staff members to provide accounting and financial business processes independent of each other. You can also assign a separate individual as the approver, and have a higher-level employee review the entries and payment information (we also ask the client themselves to review the information).

    Division of work in such a way establishes an internal control system that guarantees information is checked several times and is one of the advantages of outsourcing your business processes. Below, we list down some of the benefits of outsourcing from a risk management perspective.

    • (1) Prevents the following:

      • >> Mistakes in financial statements
      • >> Dubious transactions
      • >> Loss of data
      • >> Incurrence of penalties, fines, etc.
      • >> Law violations
    • (2) Mitigates impact of the following:

      • >> Leakage of confidential information
      • >> Employee resignation/retirement
      • >> Adjustment of busy and off-peak seasons
    • (3) Guarantees the following:

      • >> Advise from professionals who have expertise levels higher than regular staff.
  • Benefits for the administrative department

    More and more companies are outsourcing their accounting and payroll (including social and labor insurance procedures) business processes in recent years. In addition to the benefits mentioned above, there are other benefits that your company’s administrative, financial (accounting), and HR departments can receive.

    • (1) Leads to work improvement

      By outsourcing tasks such as bookkeeping and payroll calculations, a firm can actually work on adjusting and refining their workflow. Revising their workflow to be more effective and efficient would ultimately increase their quality of work.

      Also, with immediate access to advice from a professional firm, there would be no need to rush when it comes to seeking consultations. Such advice would be more extensive and contribute to the company’s work improvement.

    • (2) Guarantees stable output

      By having work done externally, there would be no need to worry about lack of manpower during seasons where staff are likely to be on-leave (Christmas season) or when a staff member is suddenly on-leave. This guarantees a steady flow of output that is submitted to CFOs or your head office’s controllers. There would also be no need to worry about teammates resigning or retiring, or the need to train new staff or replacements. Such an environment with lesser stress would mean your employees will be able to focus more on their tasks.

    • (3) Minimizes internal access to sensitive information

      If processes related to finance or HR are done internally, employees in-charge of such tasks would need access to potentially sensitive data such as employee information and salaries. Outsourcing tasks means that information is only divulged to limited staff, giving department heads and staff in-charge a sense of security.

    • (4) Allows focus to be shifted to more high-value work

      As bookkeeping and payroll calculation is work that concerns already fixed or past figures, this can be left in the hands of the outsourcing company. This gives your company more time to focus on more valuable, forward-looking tasks, like formulating business plans, budget performance analysis, and developing personnel evaluation systems, which are difficult to outsource.

  • Benefits of outsourcing accounting and other financial procedures

    When conducting business in Japan, it is essential to prepare financial statements both for reporting to the home country and for tax payment in Japan.

    However, there are differences between the accounting standards of the home country (US-GAAP, IFRS, etc.) and the Japanese accounting standards (J-GAAP), it is important that your company hires accounting staff who are familiar with these differences when preparing your books and closing the year. It is also best to hire English-speaking accounting staff to communicate with the head office.

    However, it is very difficult to hire staff who are fluent in English and could understand the differences in accounting treatment, and it is difficult to do bookkeeping work internally when human resources for accounting work are in short supply.

    If you can outsource bookkeeping work, members who have been transferred from overseas or hired in Japan will be able to concentrate on their core work. It can then greatly benefit the company.

    Outsourcing other upstream processes aside from bookkeeping can further improve work efficiency and reduce costs. Some business processes that can be outsourced together with bookkeeping that can greatly increase work efficiency are as follows:

    • ・ Processing payments (cash, bank payment)
    • ・ Invoicing
    • ・ Payroll computation
    • ・ Social insurance and labor insurance processes

    Since these ultimately lead to bookkeeping, outsourcing these processes can produce even more effective and efficient results.

  • Benefits of outsourcing payroll procedures

    Some of the benefits of outsourcing your company’s payroll procedures include:

    • (1) Wages related to payroll [staff] are lessened
    • (2) Turnover troubles when payroll staff resign or retire is lessened
    • (3) Personal information (salary amount) can be prevented from spreading within the company
    • (4) Calculate payroll in line with legal changes (social insurance rates are revised every year)

    There are many cases of HR staff who are troubled because they don’t know how to correctly calculate payroll, and on the other end are employees who are worried about income tax calculation, employment insurance rates, social insurance premiums, etc.

    The problem companies face is that even if they would be able to hire staff that can calculate salaries, should their staff resign or retire, it would be difficult to hire new staff who have the same skillset and experience. Together with Japan’s declining workforce, there has also been a shortage of English-speaking staff.

    Payroll is always a monthly task for companies regardless of their industry. Despite the frequency of payroll tasks, in addition to the problems indicated above, they also face the following issues often:

    • (1) Unsure of whether the salary computation is correct
    • (2) Turnover rate of employees is high
    • (3) Want to reduce the costs of hiring HR staff
    • (4) Want to avoid having salaries computed internally for confidentiality (but cannot compute employee salaries on their own due to lack of time)
    • (5) Difficulties with payroll calculations can cause problems for the main business
    • (6) Premium rates for social insurance can be complicated
    • (7) No information on law revisions available

    Given these factors, it is advisable to outsource payroll work to professionals, including social and labor insurance paperwork.

  • Benefits of outsourcing payment processing procedures

    Tasks related to payments can be a sensitive process that simply cannot be entrusted to inexperienced staff. Payments are generally divided into two kinds ― “transfers” and “over-the-counter”. However, as it involves handling company funds, it is both an important and nerve-wracking task. In principle, it is risky for only one staff member to handle the funds. It would be necessary to have at least one other person act as a checker and establish an internal control system even if the corporation is small. Having to hire at least two staff for payment processing can already incur a reasonable cost.

    Outsourcing payments greatly benefits a business as this allows their employees to concentrate on their main tasks.

  • Features of Shiodome Partners’ outsourcing services

    Our accounting and HR professionals provide effective and efficient outsourcing services for administrative tasks such as accounting, payroll, social insurance, labor insurance, pension processing, and payment processing.

    In order to maximize your company’s corporate value, you can focus your limited human resources in performing their core work, while our experienced professionals review and assist to improve the workflow as needed when outsourcing is introduced. We will support you from the establishment of a system that can do it. The features of our special services are as follows:

    One-stop Service

    • ・ Services offered through the cooperation of a variety of certified professionals:
      • – Public accountants, public tax accountants, administrative scriveners, social insurance and labor consultants, and lawyers
      • – Saves time and cost without having to consult multiple firms

    Quality

    • ・ Members with various qualifications and abilities will respond to your concerns.
    • ・ A unified internal processing procedure to ensure that quality is in place.
    • ・ An internal check system that goes through multiple staff to maintain quality is also in place.

    Customized Services

    • ・ Use of software and systems to meet client needs
    • ・ Report drafting in custom format to meet client needs
    • ・ Company visits and use of cloud services
    • ・ Multilingual (English, Chinese, Korean, etc.) services

    Flexibility

    • ・ We serve clients of a wide range of industries and sizes, from private businesses to listed companies.

    Shiodome Partners’ offers cost-effective, high-quality, stable outsourcing services under the supervision of certified professionals in Japan.

    The role of the CFO is not to settle books, but to look forward and decide on matters for the company’s future. We provide a quality service comparable to other major accounting firms at a reasonable price and support CFO decision making. Please feel free to contact us anytime.