Whether to Outsource Payroll or Manage In-House
Outsource Payroll vs Process In-House
The decision on whether to manage payroll in-house or to outsource payroll is not one to take lightly. The payroll process is vital to all employers and their employees. With wages and employment costs typically representing a significant percentage of turnover, accuracy in salary and deduction calculations is critical.
The importance of the payroll function, coupled with the confidentiality requirements that accompany the processing of personal data, has traditionally encouraged an in-house approach to payroll management. However, during the past decade there has been a shift towards outsourcing this process to external payroll service providers, a trend demonstrated by an annual survey by the Chartered Institute of Payroll Professionals (CIPP) which found that the number of companies outsourcing their payroll had increased from 10% to 35% between 2008 and 2019.
What is the Payroll Function Responsible for?
Payroll management comprises a precise set of processes which require a high degree of accuracy, an in-depth knowledge of the PAYE tax system, and good communication and organisational skills. It is the responsibility of a payroll department, payroll bureau or outsourced payroll service to calculate and manage the following:
- Net pay
- Distribution of payslips to employees, either physically or electronically
- PAYE calculations, EPS and FPS submissions
- Payments to HMRC
- Identification of payments which are subject to National Insurance and Income Tax deductions
- Statutory payments such as Statutory Sick Pay (SSP) and Statutory Maternity Pay (SMP)
- Administration of other deductions, such as student loan payments
- The accurate and timely payment of all employees
- Facilitation of the automatic enrolment of employee into a pension scheme
Why Businesses Choose In-House Payroll Services
In smaller companies, the director often assumes responsibility for payroll management. However, in a larger business it would not be unusual for payroll to be managed by a dedicated payroll administrator, a payroll team, or the Finance or HR departments.
When appointing new payroll staff, previous experience is always preferred, but an understanding of company accounts and bookkeeping may also be considered relevant, particularly in smaller businesses. Applicable skills would include organisational aptitude, attention to detail, and an understanding of PAYE and income taxes.
Common Issues with In-House Payroll Teams
In-house payroll is occasionally assumed to be more cost-effective when compared to the fees charged by payroll bureaus and outsourced payroll services. However, the reality is often very different; the costs associated with recruiting, managing and training payroll staff, coupled with the need for regular investment in payroll software can mean that it becomes more expensive to manage payroll in-house than the comparative cost to outsource payroll.
The importance of training in particular is often overlooked when considering the viability of in-house payroll management. Tax and employment legislation are subject to regular change, and without structured continuous professional development and regulatory refreshers, legislative changes could be missed, and employees’ salaries and deductions incorrectly calculated. With research showing that just two payroll errors can lead 49% of employees to search for a new job, mistakes such as these can prove very costly.
Staff turnover and absence is another common issue for small businesses. In many companies, a single individual manages the entire payroll, a situation which works well until that employee is unexpectedly on leave the day when wages are due to be paid or resigns without notice. The business continuity risk associated with reliance on a single individual is significant, and yet often overlooked until it becomes an issue.
A further problem rarely considered is that the confidentiality of personal information can become compromised when payroll is managed in-house. It is very easy for salary or deduction data to be divulged to colleagues – accidentally or otherwise – leading to disgruntled staff and the risk of financial penalties due to data protection breach.
These problems can be resolved by outsourcing payroll management to an outsourced payroll services agent or payroll bureau such as Paycheck Plus.
Why Businesses Choose to Outsource Payroll?
The most significant benefit of outsourcing payroll to an external payroll bureau is the peace of mind that comes with knowing that a business-critical function is being professionally and appropriately managed. This in turn means that you have more time to focus on running your business, improving productivity and profitability, and driving the company forward.
Outsource Payroll to Increase Compliance
Payroll management is subject to regular legislative change which in recent years has included the electronic submission of data to HMRC via the PAYE RTI system, and increasingly strict regulations regarding pension contributions and leave entitlement.
These general legislative changes combined with the 2019 introduction of the GDPR (General Data Protection Regulation), have significantly increased the opportunity for costly compliance breaches. With maximum penalties for data breach at €20million or 4% of global turnover (whichever is greater), the cost of non-compliance is significant.
This is especially true for businesses that employ an international workforce. Payroll legislation differs from country to country depending on local regulations. As such, it is these local rules that need to be applied to ensure compliance. In the 2017 Global Payroll Complexity Index (GPCI), 65% of the UK payroll experts and professionals surveyed said that managing legislative, HR, and payroll updates presented their biggest challenge. Each country has its own economic conditions, currencies, culture, and statutes regarding payroll, making local knowledge essential to avoiding non-compliance fines. As a result, any multinational organisation which has centralised its in-house payroll function is likely to face an increased risk of compliance errors and financial penalty.
The advantage of deciding to outsource payroll is that external payroll providers are specialists in what they do and will have experts with local knowledge who can ensure that legislative, HR, and payroll updates are implemented correctly. By appointing a specialist outsourced payroll company like Paycheck Plus to process your UK and Irish payrolls, you are mitigating the risk of compliance errors and resulting financial penalties.
Outsource Payroll to Reduce Operating Costs
One of the key factors driving organisations to outsource payroll is its ability to reduce operating costs.
With everchanging payroll legislation, auto-enrolment, IR35 and minimum wage and GDPR regulations, recent years have seen the complexity of payroll processing increase significantly. As a result, the skills, training, systems, and knowledge base required to operate an in-house payroll function effectively can be very costly and time consuming.
By deciding to outsource payroll, you are effectively receiving the benefits of employing a team of highly trained payroll experts, but without the related high salaries and ongoing training costs. Thus saving time and money.
Furthermore, with an outsourced function, you receive year-round support and do not need to consider the minutiae of payroll management.
Outsource Payroll to Improve Data Security & Confidentiality
In terms of data security and confidentiality, payroll departments hold possibly the most sensitive information within a business, certainly from a data protection viewpoint. Not only do HR and payroll records contain personally-identifiable information which falls under the remit of GDPR, but should personal details fall into the wrong hands, internally and commercially sensitive data such as employee salaries, bonuses, and employment benefits could become widely known, leading to unhappy staff, a loss of competitive advantage, and potentially large financial penalties.
When an organisation’s payroll is run in-house, the risk of a confidentiality breach is significant. Regardless of whether the in-house payroll processor is diligent and trustworthy, there are many opportunities for accidental data breaches.
By deciding to outsource payroll to a professional payroll provider such as Paycheck Plus you eliminate these risks altogether, as well as ensuring GDPR compliance.
Integration and the Streamlining of Operations with Improved Analytics
Another factor driving organisations to outsource payroll is the availability of detailed, accurate and insightful reports. Many in-house payroll departments or payroll administrators do not have the time, resource, or software available to produce detailed reports; nor do they have the capability to integrate their systems and data with other departments. This leads to analysis without context or detail, making meaningful insight difficult.
Outsourced payroll providers such as Paycheck Plus invest heavily in market-leading reporting software to ensure that they can produce detailed, accurate and insightful analytics. This allows management to make better, more informed decisions, which in turn can help to streamline and improve operations, as well as guide investment decisions.
When do Businesses Choose to Outsource Payroll?
Often businesses will look to outsource payroll because the current in-house payroll service is not performing as well as it should. However, even where in-house payroll teams functions adequately, it is always worth analysing whether outsourcing payroll could improve accuracy, achieve cost and time savings, and protect your business from legislative non-compliance.
Final Thoughts: Outsource Payroll or Manage In-House
When considering whether to outsource payroll to an external payroll services provider, we would recommend asking the following questions:
- Is your business currently at risk as a result of reliance on a single individual to run payroll?
- Does your in-house payroll administrator attend regular training sessions to ensure they are fully briefed on all current payroll legislation?
- Are your payroll records held securely? Is there any risk of data breach or accidental access by another member of the team?
- What is the real cost to your business of managing your payroll in-house once payroll software subscriptions and training costs are considered?
- Could your business benefit from enhanced payroll analytics? Do your current payroll reports offer sufficient detail to make insightful recruitment, investment, or budgetary decisions?
If your responses to these questions lead you to believe that an outsourced payroll service could offer value to your business, request a callback now or call the Paycheck Plus office on 0161 464 8720.
Paycheck Plus, Your Payroll Outsourcing Partner
If you have decided to outsource payroll, then look no further. Paycheck Plus is an award-winning UK payroll provider serving businesses across the United Kingdom and Ireland. We provide comprehensive, ISO accredited, outsourced payroll services to organisations of all sizes from our Payroll Bureau in Manchester. Specialising in all aspects of outsourced payroll, our team of payroll experts is well-versed in all payroll related functions and services including day-to-day tax, national insurance calculations, auto-enrolment and pension administration, and the management of deductions such as SMP, SSP, student loans and other complex payroll services.