Pros and cons of outsourcing payroll
If you’re tempted to move this complex business matter into the hands of an external provider, it’s important to remember that there are both pros and cons of outsourcing payroll – benefits may be plentiful for many businesses, but it’s not true for all.
No big business change decision should be taken lightly. Every organisation 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 management, or are concerned about the potential drawbacks you might face, our quick guide will help you to decide if it’s the right choice for you.
Outsourcing payroll – benefits for your business
Here are the main advantages of outsourcing payroll to an external partner...
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.
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.
Your employees still need paying, 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 something shifts in your business, 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 your requirements as you grow, due to seasonal or industry changes.
For example, say you’ve just had 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 can take this upturn in work in their stride, and will be used to having to manage these fluctuations in their workload while still ensuring accuracy and efficiency.
Enhanced payroll expertise
When you outsource your 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, reporting methods… so you’re always on top of things. You can leave everything in their hands, without having to ‘fire fight’ any issues that may arise internally.
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 providing you with a service you can rely on.
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 relies 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.
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 your end.
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.
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.
Pass on 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
As a business owner or manager, one of the biggest outsourced payroll benefits you’ll enjoy is the peace of mind that comes with knowing that your salary calculations, payroll analysis, reporting and compliance are all in the hand of a dedicated team whose sole focus is to get the job done, efficiently, effectively and thoroughly
The disadvantages of outsourcing payroll services
While it’s clear that when it comes to outsourcing payroll, benefits to your business can be pretty significant, it’s important to consider some of the potential drawbacks too, so you can make an informed and educated decision.
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 handover 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 make a decision on who to work with.
Make sure they’re willing to listen to any concerns you have about 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.
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 – if you’d like to put our services to the test, drop us a line and we’ll be happy to answer your questions or keep on reading about outsourced payroll.