When are you big enough to outsource payroll? John Ovington, Sales & Support Director at Carval Computing discusses the pros and cons of getting the professionals to do the job, and explains the various options.
It isn’t really a question of size that matters when considering whether to outsource your payroll, but more a case of looking at the business benefits you might derive from getting someone else to do the donkey work. It is worth remembering, however, that while you pass the work to someone else, you retain ultimate responsibility that your company is compliant with legislation.
So, if the time and effort of managing the payroll starts to affect the running of your business, it’s time to think about what other options are open to you, so that you can focus on your core activities. First, let’s look at the benefits of getting the professionals on the case.
The case for outsourcing payroll
1) Peace of Mind
The first and most obvious benefit is peace of mind, knowing that your payroll is being calculated and processed correctly. As soon as you start employing people, payroll gets complicated. The calculations alone are highly complex and then you have to send Real Time Information (RTI) to HMRC, and face the consequences if you miss the deadline or get it wrong (usually a fine).
2) Legislation Handled
Keeping up with taxation and legislation is a time consuming job. And now all companies are required, or soon will be, to provide workplace pensions for their staff. Some lower paid or part-time staff may not be eligible, but those on variable pay might slip in and out of eligibility. A good payroll service will take care of this for you.
3) Business Continuity
Imagine it’s holiday time and then you are struck by sickness, or other unexpected absence. Or your technology fails on that critical afternoon. What do you do about the payroll? While no one thinks of payroll as mission critical, actually it is if you don’t pay your staff on time.
Having an external resource that specialises in payroll means that they are not affected by absence because they have dedicated staff, and resilience built into their IT systems.
4) Prevention of Fraud
There are plenty of horror stories, from fiddling expenses, adding a few extra hours to an overtime claim, right up to setting up ghost employees. In a small organisation you would probably notice a bogus salary being paid, but the odd extra bit of overtime can go unnoticed and it all adds up.
By outsourcing payroll you remove the opportunity for fraud, and you reduce the likelihood of genuine mistakes, because you have the eagle eyes of payroll professionals scrutinising your data, before they even send it you for final sign off. Specialist providers have technologies to track payroll processes and will alert you to any suspicious activity. (Read: How to use integrated HR and Payroll Software to reduce fraud.)
5) Risk Management
As ISO9001:2015 is moving towards ‘risk-based thinking’ so risk management is becoming a cornerstone of any corporate strategy. Looking to mitigate risk within your operations is common sense and that includes processing the payroll. Opting for an outsourced service provides a lot of different options, and certainly mitigates the risk of failing to pay your staff on time.
6) Better, more cost effective service to staff
Last, but by no means least, is the question of cost. For most businesses outsourcing payroll is cheaper and less time consuming than running it in-house. You don’t need specialist staff, and you also make savings in other areas such as the associated tax paperwork, cost of payslips, stationery and delivery/postage.
And, you will be providing your staff with a better service. Not only will they be paid correctly and on time, most payroll services provide a helpline for staff who have queries too. These days, most payroll services provide the option for online or email payslips, which, subject to security, staff can access whenever they need to, from any location.
What are the different outsourced payroll options available?
There are various services depending on your requirements from a simple, yet highly effective payroll bureau to a fully managed payroll service. Choose a provider where you can pick and mix the elements that you need to ensure you have the correct level of service and flexibility to suit your business. (Check out our handy payroll options comparison chart to help you work out what's right for your business.)
- Standard Bureau Service: The service provider takes over your payroll, from calculation to processing, distribution of payslips and making the payments via BACS. You just supply the information in different ways, maybe using a template, via a web portal or secure interface and they do the rest.
- Bureau Service with extra options: Some of the more specialised providers provide more options that give you the added benefit of having in-house access to the payroll software, while the bureau still does all the processing, which typically includes RTI and payslip production. This means that you can run reports or check payroll data any time that you want.
- Fully Managed Payroll Service: This is where you completely outsource your payroll and your service provider becomes your payroll department. As well as managing every aspect of payroll they will also liaise with HRMC on your behalf, and handle any queries from your employees directly.
- Integrated HR Software: Another more specialised option that you probably won’t get from your accountant, fully integrated HR software that works in tandem with your payroll service provider. Some providers can even supply a self-service system for your staff to access to their payslips online, or check their holiday balances, personal details, sickness, from an App on their smartphone.
And what happens if you decide to bring it back in-house?
If you choose the right supplier, you can easily bring payroll back in-house if you want to. If you have opted for a service where you have in-house access to the payroll software, you can convert very easily using software that you are already familiar with.
How do I choose an outsourced payroll service provider?
Your accountant may have been running your payroll for you, most do provide payroll services, however, as your business grows, having your accountant run the payroll can be quite costly. Payroll specialists have economies of scale, and those that provide the software to run payrolls as well as running a bureau or managed payroll service are likely to be the most cost effective option, because they don’t have to pay for the software, whereas other providers do.
Ensure that the supplier you choose is HRMC approved and BACS certified so that they are able to make the payments on your behalf.
Another final point to consider is looking for a local provider. In the age of the Cloud and remote working, obviously any bureau is happy to take your business, but sometimes it’s good to know that your precious staff data is being handled locally, and if you want to pop in and see your payroll department face to face, you can.