More and more companies are looking to outsource their payroll management. Why? Because it makes good business sense. For many organisations with in-house teams, the cost of payroll services is simply too high. But it’s not just down to costs. Accuracy and reliability are important factors, too. Particularly when you consider the penalties for failing to comply with regulations.
Today, we’ll take a look at what it really costs to manage payroll in-house and examine the benefits of outsourcing your payroll operations. We’ll also take some time to talk about what you should be looking for in a payroll partner.
What Does Outsourcing Payroll Involve?
Outsourcing payroll means bringing in a third party specialist to handle all the tasks involved in managing your payroll. From collecting timesheets and issuing payslips to handling employee enquiries and liaising with HMRC, a payroll solutions provider is typically responsible for managing every aspect of the process.
However, with modern payroll outsourcing, there’s also a significant amount of flexibility. Many organisations offer several different types of payroll services, allowing you to tailor the service to your needs. You might opt to outsource all aspects of your payroll, relieving yourself of a time and resource-heavy burden. You might also choose a partial service that takes care of certain aspects of payroll management but leaves you in control of others.
In general, a payroll management service will include some or all of the following features:
- Paying your staff accurately and on time
- Ensuring all payroll processes comply with the relevant government legislation and your financial obligations
- Drafting and distributing all employee payslips and P45s
- Organising and delivering all additional employee payments, such as sick pay or paternity pay
- Managing and submitting all documents required by HMRC
- Completing all end-of-year documentation, e.g. employees’ P60s
Many payroll specialists will also offer additional services, such as an in-depth analysis of your payroll.
The Hidden Costs of In-House Payroll
In-house management of payroll can benefit businesses and offers complete control of the process. However, there are several hidden costs that make outsourcing payroll services the most cost-effective and business-savvy way to go. These include:
Inflexibility
In-house payroll management is okay if your business is predictable and there’s never any significant changes to your staff numbers or recruitment. However, for companies with a high staff turnover or seasonal surges, it can be problematic.
In-house payroll teams are typically set up to handle a predetermined amount of work. If you need to scale quickly, onboard a large number of new employees or meet a seasonal surge in demand, that team is quickly overwhelmed. Generally, they’re inflexible and ill-equipped to handle significant changes in staff numbers.
Technology Costs
All in-house payroll teams need access to relevant payroll technology to perform their role. Acquiring and renewing the licenses for this technology can be expensive, while maintenance and troubleshooting costs also soon rack up.
Human Error
Mistakes are commonplace in the complex world of payroll management and human error can prove costly for your business. The penalties for non-compliance are significant and if it’s your in-house team making the mistakes, the responsibility for paying those fines rests entirely with your organisation.
Benefits of Outsourcing Payroll
Having looked at the hidden costs of in-house payroll management, it’s now time to look specifically at the benefits of outsourcing those processes.
Cost Savings
For most recruitment companies, this is the most tangible benefit associated with outsourcing your payroll management. While large multinationals often have the luxury of employing a significant in-house payroll team, most SMEs and start-ups simply can’t afford it. This means that businesses that employ more than a handful of individuals typically find it cheaper to outsource their payroll management.
Some payroll specialists charge a per-employee fee, while others will base their quotes on a range of factors. Part of finding the right payroll partners is requesting pricing quotes and comparing those to your existing expenditure. However, it’s also important to consider what changes or developments may take place within your business in the near future. Planning on expanding? You’ll want to factor in the cost of those additional employees, too.
Simplicity
Managing your payroll can be complex. The rules and regulations often change and there’s an almost endless array of complicating factors to keep in mind. Many of the errors made by in-house payroll teams come down to the fact that they’re not equipped to navigate detailed and ever-changing legislation.
In 2018, 243 businesses were fined a total of £1.97 million for failure to correctly pay staff the National Minimum Wage. Many of these businesses were fined because they failed to employ the accommodation offset correctly or calculated pay for the wrong time period. In the grand scheme of things, these are relatively simple mistakes that have cost companies a large amount of money. Utilising a payroll specialist eliminates these mistakes and their potentially devastating consequences.
Data Security
On average, significant data breaches cost businesses somewhere between £65,000 and £115,000. For many smaller companies, this would mean the end of the road. Payroll specialists recognise the dangers of poor data security and are trained to follow safe and secure practices, as well as to identify and negate threats.
While many organisations are understandably concerned that outsourcing data-sensitive tasks to a third party may increase the risk of a security breach, the opposite is true. Payroll companies typically invest in superior security, are more aware of the dangers and are better trained. Their reputation depends on being so.
In 2019, 90% of UK digital security breaches were the result of human error. In a significant proportion of these cases, the error can be attributed to undertrained and unaware employees who were not provided with the necessary skills to avoid their mistake. With an established payroll specialist, the specialised training and preparation provided minimise the possibility of such errors being made.
Versatility and Economies of Scale
Payroll management services benefit from economies of scale that SMEs cannot hope to match. Their specialism allows them to invest in new technologies and training that aren’t available to other organisations. This is particularly important when it comes to efficiency. Automation technologies play a significant role in making the payroll process quicker, more accurate and more cost-effective. The vast majority of businesses can’t afford to invest in such technology. But payroll specialists can.
At the same time, their larger workforce and the ability to respond in an agile and versatile way ensures that they can easily handle surges in demand or sudden changes in circumstances.
For instance, if your business intends to scale up over the coming years, payroll management services allow you to do so without increasing the number of employees working on payroll or dedicating valuable time and resources to the process. Likewise, if you experience an increase in demand that means you need to hire several short-term employees, a payroll management service is better equipped to handle that temporary increase.
Reliability
Small, in-house payroll teams are very susceptible to disruption. If a key member of your payroll staff is ill, on holiday or leaves the company, your business is suddenly left with a worrying lack of expertise and experience. Finding a replacement is often tricky, expensive and impractical. Similarly, an unexpected upswing in demand can push payroll teams to the limit. For many in-house payroll departments, a busy period is likely to lead to more mistakes and a considerable amount of stress.
With outsourced payroll, you don’t have to worry about disruption. The company you outsource to will continue to deliver their services come rain or shine and its large, specialised workforce isn’t affected by changes in personnel or absences.
Access to Cutting Edge Technologies
Just like the vast majority of service-based industries, payroll management has undergone rapid change and development as more powerful digital technologies have become available. Cloud-based data management systems and Robotic Processing Automation (RPA) are now used extensively by payroll managers. While this enables them to offer superior customer service to clients (information requests are much easier to process), it also increases the accuracy and speed of payroll processing.
Additionally, payroll management specialists have access to advanced analytics capabilities that can drastically improve your understanding of the payroll process and resource management. Finally, AI applications can spot errors and identify where and why they’re happening, giving you an opportunity to fix the issue.
Employee Satisfaction
Employees expect to be paid the right amount, on the right date. Incorrect payments or missed paydays can lead to considerable discontent, a drop in morale and a range of other management issues. Despite this, many in-house payroll teams still struggle to meet deadlines and issue error-free payslips on a regular basis. This problem is further inflamed when the payroll team is over-stretched or placed under pressure.
Outsourcing your payroll management avoids many of these issues by ensuring your payroll is accurate, deadline-driven and delivered reliably. Your staff will always receive the right pay, at the right time, preventing friction between staff and management and ensuring employees remain motivated.
Peace of Mind
Though it’s hard to put a price on peace of mind, many business owners and managers would pay a serious amount if just some of the stress and worry were lifted from their shoulders. Outsourcing payroll management does exactly that. Rather than worrying about accuracy, compliance and the ins and outs of in-house payroll management, you can focus your attention and energies on more important aspects of your business.
Managing payroll does not excite and inspire senior company figures. It’s certainly not why they got into business and it’s usually not the best use of their valuable expertise, experience and resources. At the end of the day, getting your payroll right is not going to make your business a success. But getting it wrong could sink your company or, at the very least, prevent you from concentrating on those elements that contribute to sustained growth.
What to Look for in a Payroll Solutions Provider
If you’re looking for a payroll specialist, you must ensure that they’re a good fit for your business. We would recommend keeping the following factors in mind:
- Cost - the company’s services must be affordable and represent a worthwhile saving on your current system. They also need to continue being good value should your business grow
- Responsive - you want a payroll specialist that’s going to be attentive and responsive to your needs. You don’t want a provider who is difficult to contact, ignores your concerns or doesn’t take the time to listen to your concerns or questions
- Good reputation - make sure you take a look at any potential payroll provider’s testimonials and reviews
- Intuitive Interface - many payroll service providers will give your business and employees access to a self-serve portal. This allows you to utilise certain features without having to contact the provider. However, you need to make sure that the portal interface is intuitive and easy to use
- The features you need - not all payroll services are the same. Some offer more features and some less. The important thing is you find a provider that meets your needs. Do they offer detailed payroll reports? Multiple Payment options? PTO management?
Conclusion
Often, managing payroll in-house is not only prohibitively expensive but also puts you at a competitive disadvantage. It consumes valuable time and resources that could be put to better use elsewhere, makes it more difficult to grow and scale up quickly, and can be devastatingly unreliable. It’s not just the high up-front expenditure that’s a problem, though. As we’ve shown, there’s plenty of hidden costs, too.
Outsourcing your payroll to Finesse Resources is an effective way of reducing costs, improving payroll accuracy and guaranteeing reliable delivery of wages and other payments. It relieves your organisation of the strain of managing your payroll and puts you in the position to focus on those things that really matter to your business. With Finesse, you benefit from an industry-leading service that’s designed to meet your business needs.