Risks of Outsourcing Payroll & How to Avoid Them

Weighing Up the Risks & Benefits of Outsourcing Payroll

The decision to outsource your payroll should not be taken lightly. While you gain all the benefits of outsourcing, you must be mindful of the risks. After all, you will be handing over sensitive and business critical information to someone over whom you have limited oversight. As well as the risks in engaging a new outsourced solution, there are issues surrounding the implementation of that service that need to be considered too.

Being aware of the risks of outsourcing your payroll is important for any business to understand. If you choose to go down the route of outsourcing, be mindful of these issues when considering which company to choose.

Key Risks of Outsourcing – Why People Choose Not to Outsource Payroll

1. Choosing an inexperienced company

Inexperienced staff in charge of the outsourced service negotiation leads to a poor contract. A lack of preparation can result in a contract which does not reflect your specific needs.

2. Potential incomplete transfer of payroll data

Transferring payroll data to your outsourcing service is a vital aspect that comes with several risks. Incomplete transfer of payroll data means that the payroll outsourcer’s staff don’t have the capability or information to handle unique challenges faced by the business. Incomplete data transfers, along with poor access will compromise service delivery during transition.

3. Loss of relationships with payroll staff members

Outsourcing your payroll naturally saves money, but often comes at the cost of staff. Loss of personal relationships with payroll staff members can lead to employee dissatisfaction. It is essential to manage employee expectations of how the service will work, and what will be different in the new outsourced world.

4. Disturbing the interim payroll function

From an operational perspective, losing key payroll staff during the implementation phase will impact the quality of the interim payroll function, and possible future productivity of the department. It is important to make sure that all stakeholders are engaged and on board with the new outsourcing arrangement. Existing third party providers in another part of the business may not want to collaborate with a new outsourcing provider.

5. Accidental non-compliance with legal responsibilities

It’s worth remembering that your legal responsibilities as a company won’t cease just because you’ve chosen to outsource your payroll. This means that you must ensure communication remains consistent with your supplier. Ultimately, you are responsible for your business remaining compliant with legislation, so it’s important to know who is accountable for what.

Practical risks of transferring your payroll & how to prevent them

Transfer payroll data quickly and efficiently

As well as being highly accurate, payroll data needs to be transferred quickly and efficiently. If it isn’t, your payroll function will become delayed and the transition phase will start to become unreasonably expensive both in time and money.

Work with your payroll provider to ensure a smooth transition

Don’t underestimate the amount of internal resource required to transition from an in-house payroll function to an outsourced service provider. You and your payroll provider have to work together to make a smooth transition while maintaining a regular service. A clearly defined division of work is essential. Make sure that you know what you need to do, what the payroll provider needs you to do, and how long each task will take.

Provide consistent communication

Ensure regular, accurate and consistent communication with stakeholders. Executive sponsorship is key to a successful implementation of payroll outsourcing.

Create a service management process

Define a clear and simple service management process for the transition including rules, frequency and nature of engagement with the service provider’s project management team. Make sure communication channels are kept open at all times.

Make sure you agree what the new service delivery will look like, what will stop, start and continue for retained payroll staff in the new model.

Questions to ask a payroll provider:

Who will be the primary point of contact?
Who will be carrying out the work?
Who will deal with any arising issues?
How quickly will my queries be dealt with?
Where is payroll processed?
Explore more questions

A risk-free payroll solution – FMP Global

Payroll is one of those processes that is essential, but not critical to sales and business growth. This is why payroll can feel like a drain on work hours and resources – resources that could better spent in making money.

Payroll is complex and payruns need to be made on a regular basis, so this function doesn’t just go away once it’s done. By outsourcing your payroll, you can alleviate those burdens and channel more of your time, energy and resources into your core business functions.

Outsourcing payroll involves risk only if you work with the wrong company. In our experience, outsourced payroll firms introduce errors when they don’t take the time to fully understand the complexities of your business. It’s for this reason that our tailored approach to outsourced payroll is absolutely fundamental to our way of working.

We are also proud to be a HMRC and BACs approved bureau, with a highly professional team dedicated to ensuring your payroll is legislatively compliant. Our payroll managers collectively have over eight decades of experience, and carrying out frequent checks is a key priority.

You can trust us with your payroll.

We’ll answer any questions you have about payroll outsourcing.

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Risks of Outsourcing Your Payroll