Should I Outsource My Payroll?
- September 1, 2019
- Posted by: Gary Parsons
- Category: Pay, Reward & Benefits
No matter the size of your business, payroll is a necessity to ensure that your staff are taxed and paid appropriately. Choosing how to handle your payroll is vital, as it will affect how your business operates on a monthly basis.
What Are My Options?
Realistically, the choices are either to manage payroll in-house or to outsource. Depending on which you choose, you’re monthly workflow will change dramatically.
Typically, businesses choose to handle their payroll in-house, nearly always opting to subscribe to one of the various software solutions that assist in the management of the process. This requires two resources – an employee trained in the process and legislation, and subscribed software.
The other alternative is to outsource your company’s payroll account to a third-party. Outsourcing your company payroll function gives you peace of mind that this area is being handled by individuals that specialise in this task day in, day out, and will comply with the necessary legislation that surrounds payroll submissions. As the work is completely outsourced, the impact on your business is greatly reduced.
What Do I Have To Think About When Dealing With Payroll?
Payroll is a complex area. It’s not just about ensuring all employees receive the correct basic pay, and other payroll issues you might be faced with include:
- Overtime
- Bonuses
- Commission
- Redundancy payoffs
- Maternity/paternity pay
- Child support payments
- Pension contributions
- Payments to other employee benefit schemes, such as group health plans
- Business expenses
- Whether to classify individuals who provide services as employees or self-employed
- Ensuring the system uses the right start and end dates for employees joining or leaving the company
Mistakes in payroll cause huge problems, including loss in productivity and employee dissatisfaction, meaning they are best avoided. By outsourcing to a third-party expert, you minimise the risk of mistakes affecting your business negatively.
For example, if an employee is underpaid or overpaid, the mistake may not even get noticed. It may mean, however, that an individual ends up paying too little or too much in tax and/or National Insurance.
If a mistake is noticed, and efforts are made to rectify the error, then it can lead to a great deal of unpleasantness. An employee who receives less pay than they should is unlikely to feel charitable towards you as their employer, and you will be left with the task of working out exactly what ‘back pay’ should be paid to make up the deficit. Should an employee get paid too much, it can be awkward trying to recoup this.
Legislation relating to payroll can change at any time, and as a small business you need to ask whether you can keep up to date with any such changes, and make the necessary amendments to your procedures. The recent introduction of auto-enrolment pensions has been one example of a recent payroll headache for smaller companies.
2016 research by the accountancy firm UHY Hacker Young showed that payroll errors cost UK companies more than £700 million over the course of just one financial year.
A payroll company will charge a fee for its services, but if you decide to outsource this function, then you will not have to pay someone in-house to administer payroll, will not have to spend money training them, and will not have to purchase a payroll computer system.
Studies have shown that many small businesses spend 6 or more hours each week on payroll-related tasks, time that could perhaps be better spent attending to customers’ needs, or focussing on how to grow the company.
Even if you think you have someone amongst your staff who is competent to carry out all payroll tasks, what would happen if that person left the company, or was off sick for an extended period?
What Should I Look For When Keeping Payroll In-House?
If you are looking to operate your payroll, there are two key factors to making your in-house payroll a success. Firstly, you need to source the right employee to either be trained or hired to manage your company’s payroll successfully. Secondly, you need to find the right payroll software to assist in the management of payroll.
Finding The Employee
The specification of the role will change depending on the size of your company. For a smaller company, you could consider investing in an existing employee who has shown an aptitude, such as a HR Manager – training and support will need to be provided to ensure that the payroll is completed accurately and to legislation. Furthermore, your employee will need to be consistently appraised of changes to the process, updates to law and legislation surrounding payroll processing.
As your company grows, so too will your payroll requirements. It’s entirely possible to reach a stage where you’ll need to look at hiring an employee to manage this successfully, or to train a number of employees to ensure that it can be completed in a timely manner. Keep in mind that employee retention becomes an important factor when keeping payroll in-house; if your sole payroll processor decides to leave your company, do you have a contingency to ensure payroll is still handled?
Finding The Software
This step is a little simpler, as there are a number of high-quality software solutions that will assist in the completion of payroll each month. The most important aspects to consider are: ease of use, training required, service model (subscription, purchase, etc.), and feature set.
Most payroll software is designed to scale with company size sufficiently, though it’s always important to check that the service is sufficient.
What Should I Look For When Outsourcing Payroll?
If you have chosen to outsource your payroll function, here are some things you should look for when selecting a payroll provider:
Accuracy
Can the payroll provider deliver a high-quality service without making errors?
Experience
Has the provider a long track record of providing payroll services?
Efficiency
Can the provider complete the task of administering the company’s payroll quickly and efficiently? Is their service tailored to your company’s individual payroll needs? If you need it, can the provider cope with the need to deal with overtime payments, bonuses, commission payments, redundancy payoffs, maternity/paternity pay, child support payments, auto-enrolment pension contributions, payments to other employee benefit schemes and other business expenses? If you are expanding and taking on more staff, can the provider cope with the increased workload?
High Levels of IT Security
With cybersecurity becoming an increasingly important issue for companies of all types, does the provider have secure IT systems, with virus protection, firewalls, password protection, encryption etc.? It would not be a pleasant task for you to explain to your employees that their personal details have been stolen due to a security breach at the payroll provider
Friendliness
Does the provider offer good customer service and deal with you in a friendly and approachable way? Do they answer the phone promptly and answer email and social media queries promptly? Are they available to answer queries throughout normal business hours, and preferably at other times as well? Does the provider offer you a dedicated personal contact, rather than making you go through a call centre?
Value For Money
As with most things in life, when selecting a payroll provider one gets what one pays for. It is, therefore, necessary to pay a certain amount in order to receive a quality service in return. But nevertheless, a good payroll provider’s charges will be affordable to a regular small business, and their charging structure will be transparent
Satisfied Previous Clients
Can the provider supply a series of testimonials and references from a range of clients who they have worked for? Any established payroll provider will have a number of happy businesses to show their credibility – this is a crucial final step in the decision process.
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Last Updated on 1 year by Gary Parsons
