Is it easy to outsource payroll?

31st August 2017

Every company has to carry out payroll processing. Unfortunately, it is one of those essential tasks which must be done accurately and promptly but which does not, in itself, increase profits or move the business forward. It is therefore an ideal candidate for outsourcing.

Is it all about saving money?

Outsourcing the processing of payroll can help businesses reduce in-house administrative headaches, but according to a recent survey (by BPO analysts Nelson Hall), the number one reason for outsourcing payroll continues to be cost reduction, with approximately 85% of respondents citing this as their primary business goal.

According to a PricewaterhouseCoopers (PwC) report  in 2012 (Exposing the hidden cost of Payroll and HR Administration), “Organizations that outsource payroll spend an average 30% less per payslip compared to those that use in house solutions”.

The report also went on to outline ‘hidden costs’ that increase the total cost of ownership of inhouse payroll functions, that include maintaining knowledge of specialist payroll people, systems and procedures and customer service when employees make contact.

But is there more to it than just saving money?

Let’s examine what’s involved with Payroll processing

• Gathering weekly/monthly pay data for all personnel
• Calculating pay, tax, NI and other additions and deductions
• Creating payslips and distributing them to staff
• Adding new employees and removing leavers from the payroll
• Creating relevant documents such as P45’s, P60’s and others
• Creating accurate reports for accounting purposes
• Arranging payments into personnel bank accounts
• Arranging PAYE payments to HMRC
• Arranging pension payments and compliance with TPR regulations
• Compliance with GDPR Regulations ( rom April 2018)
• Making alterations to employee data such as tax codes, bank details etc
• Submitting figures to HMRC
• Keeping up to date with changes in pay and tax regulations
• Dealing with enquiries from personnel

So, it’s easy. I can drop everything when I outsource payroll?

The research seems to suggest outsourcing is a no brainer, but it shouldn’t be your only reason for changing payroll, and you certainly shouldn’t go to market looking for the cheapest provider. That would be a mistake.

For many companies the primary benefit is peace of mind, knowing that staff are being paid accurately and on time and that all legal requirements are being fully met.

Payroll has become infinitely more difficult over the last few years with things like RTI and auto enrolment. Keeping up to date with all changes to pay, pensions and employment legislation has become a full-time job in itself.

Deciding whether to outsource payroll should also consider where your wider business strategy lies. For some staying in house may well be the right decision, but changing to better payroll software may be the answer. For others, they might want to relieve some administrative pressure by keeping control of the front-end input of payroll detail, but leave all the administrative grunt to someone else. Others may want to have everything outsourced so that they can focus on other business priorties.

And changing over to an outsourced provider does involve a process. Getting the implementation right ensures a new payroll provider gets off on the right foot. Abdicating responsibility as soon as the ink is dry is a recipe for disaster.

It’s easy to make the decision. But make sure you invest the right amount of time to ensure your new payroll is a success. If you don’t, a few months down the line you could be trying to unravel a mess that could have been avoided.