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Pros and cons of outsourcing payroll

If you’re tempted to move your payroll into the hands of an external provider, it’s important to remember that there are both pros and cons. Whilst outsourcing payroll can deliver a wealth of benefits for most businesses, it’s still important to double check it’s the right option for you. 

Every business has its own unique structure, staff makeup and sensitivities – and all of these should be considered when weighing up the advantages and disadvantages of outsourcing payroll services.

If you’re wondering what benefits you can expect from outsourcing your payroll and are concerned about the potential drawbacks you might face, our quick guide will help you decide if it’s the right choice for you.

    Outsourced payroll pros and cons – at a glance

    pros and cons of outsourced payroll

      Outsourcing Payroll – The Benefits 

      Before you get started, you may find our guide to the differences between in-house payroll and an outsourced service helpful. This will help you understand exactly what you’re receiving with outsourced payroll and some of the reasons you may wish to keep payroll in-house. 

      If you’re fully up to speed on the differences, here are the main advantages of outsourcing payroll to an external partner...

      Payroll accuracy

      One of the main benefits of appointing specialists to do a job is that they know how to do it well. If you outsource your payroll, you’ll be dealing with qualified professionals who have the latest knowledge, the latest technology and a keen eye for detail. This is good news for employee engagement and retention as there will be no pay mistakes, miscalculations, or late paydays. 

      Improved reporting

      Whatever information you need, or perhaps even more importantly, HMRC needs, your provider will be well-versed in providing the data in clear, meticulous reporting formats. They’ll be able to provide accurate breakdowns of every aspect of your payroll, giving you detailed insights and ensuring that your reporting duties are met, clearly and comprehensively.

      Continuity and resilience

      No business stands still. Changes happen, staff leave or get sick, technology goes awry and interruptions to the day-to-day workflow occur. Not so when you’re outsourcing payroll. The benefits of business continuity and resilience in the face of fluctuating circumstances can’t be underestimated.

      When disaster strikes payroll, employees still need to be paid, and unfortunately, HMRC won’t wait – even if the hiccups are out of your control. It can be hard juggling everything with only your internal team for support, and sometimes things happen that put you under additional pressure (for example, a global pandemic!) – so outsourcing your payroll can prove a real advantage when the unexpected happens.


      Permanent, internal staff cost what they cost: whether they’re busy or experiencing a lull in their workload. On the other hand, they can only do what they can do, so if there are business shifts or changes, it can be hard for internal teams to keep up. When it comes to the pros and cons of outsourcing payroll, flexibility is a huge benefit. Your provider will be able to adapt their services (and costs) to suit fluctuations in business requirements, whether this is due to growth, seasonal demands, or industry changes.

      For example, say there has been a big recruitment drive due to expansion. That’s a lot of new starters who need to be added to your payroll system in a short space of time. This can prove challenging for a small in-house team who will have to rush to get everything in place – potentially leading to mistakes. A larger outsourced payroll team will take this upturn in work in their stride whilst still prioritising accuracy and efficiency.

      Enhanced payroll expertise

      When you outsource payroll, your partner will either be a dedicated provider or have an entire business department devoted to this service alone. As a result, every person involved in managing your payroll will be experienced and highly trained in the latest software, legislation, and reporting methods. You can leave everything in their capable hands, without having to learn about new legislation or systems yourself. 

      This is another big advantage of outsourcing payroll services – you have a team on hand who are used to handling complex processes and calculations, day in/day out, for a wide range of different industries and situations. They’ve already seen it all and found a way to solve those problems and will apply all of this expertise and knowledge to your service. 


      Your outsourced payroll provider has a vested interest in ensuring that your data is secure – their reputation and their relationship with you and their other clients rely on it. Their systems are set up to accommodate specifically for managing partner data and their software and security systems will be incredibly robust – look for ISO27001 certification if you want assurance that they’re taking their responsibilities seriously.

      Compliance controls

      Legislation is updated and introduced on what sometimes feels like an alarming frequency. Another major payroll outsourcing benefit is the instant access it gives you to top level consultants and advisors – not just a small team but a whole support network of professionals. Any compliance changes will be implemented immediately, either system-wide or specific to client needs. You’ll be able to get advice any time you need it and your provider will ensure clear communication so you know what (if anything) you need to do. 

      It’s worth asking your payroll provider if they carry an ISAE 3000 certification, as this shows that their processes are audited and compliant with relevant laws and regulations.

        Read more about payroll compliance in our guide

          Read guide

          Lower payroll salary and ownership costs

          All of the costs associated with payroll are absorbed by your provider when you outsource, including staff salaries. You’ll pay a fixed fee so you’ll always know where you stand, and rather than having to fund the salaries of an entire payroll department, you can reduce your associated staffing down to one or two payroll administrators to manage the relationship with your outsource partner.

          This also cuts down on recruitment, on-boarding and training costs, sick/holiday pay, bonuses plus, of course, all the infrastructure that goes hand-in-hand with managing your payroll – such as equipment, software, licenses and more.

          Hand over liability and late penalty responsibilities

          Another key advantage of outsourcing payroll services is that your provider will take full responsibility for your reporting liabilities to HMRC – including any penalties for late submissions or mistakes in your payroll/tax/NI calculations. Because the onus is on them, you can be sure that they’ll be doing everything they can to avoid these penalties occurring in the first place.

          Peace of mind

          One of the biggest outsourced payroll benefits you’ll enjoy is the peace of mind that comes with knowing that salary calculations, payroll analysis, reporting and compliance are all in the hands of a dedicated team whose sole focus is to get the job done, efficiently, effectively and thoroughly.


            The Disadvantages Of Outsourcing Payroll Services

            As demonstrated above, there are plenty of pros and benefits to outsourcing payroll. But these don’t apply to every business. For some businesses, keeping an in-house payroll team makes more sense. It’s important to consider any potential drawbacks before outsourcing payroll so that you can make an informed decision. Because we’re all about transparency at SD Worx, here are some of the downsides. 

            Less in-house payroll expertise

            If you move to an outsourced payroll service, while you’ll be gaining professional, external support, you will lose the level of in-house expertise you’ve become accustomed to. You’ll be working with a much more pared-down payroll department which will consist of more junior, admin-level staff. This means you’ll need to take any questions, queries or concerns to your provider, rather than having the convenience of a quick internal catch-up.

            Less control of your payroll

            You’ll have been used to having complete control over every aspect of your payroll, so when you hand over to an outsourced partner, you’ll also hand over the majority of this control. This can feel a little daunting to some business owners, who are used to having everything under the same umbrella. It’s a real exercise in trust – which is why it’s important to research a range of payroll companies before you decide on who to work with.

            Make sure any potential provider is willing to listen to any concerns you have about the loss of control and ask to retain certain aspects of the process if this makes you feel more comfortable.

            Sharing of confidential and sensitive data

            As part of any payroll system, you’ll be storing vast amounts of staff data, including confidential and sensitive information such as their personal details/address, salary and tax information and much more. As part of the outsourcing process, you’ll need to hand all of this data over to your payroll partner, which again, may make you feel a little uneasy. Therefore, always make sure that you take a good look at their GDPR and security policies before you sign on the dotted line.

            Potential issues with reliability

            As with any outsourced service, not all payroll providers are created equal. While some will offer a robust standard of quality and customer care, sometimes businesses bite off more than they can chew. Do your due diligence, check customer reviews and ensure that any payroll partners you’re considering signing up with have the capacity and capabilities to manage your requirements efficiently – and that they can scale up their services when needed.


              SD Worx

              As you can see, there are a lot of pros and cons of outsourcing payroll benefits may be plentiful, but you need to balance out the advantages with any potential pitfalls. Most businesses are financially motivated to outsource payroll and that could be the case for you. 

              Why not get in touch to speak to us about your situation and see if you could save by outsourcing your payroll?