Everything you need to know about moving to Managed Payroll

3 November 2020

Outsourcing

Misconceptions around payroll outsourcing could be holding back your business. Our customers find that moving to a managed payroll service pays them back dividends, driving productivity, increasing ROI and giving payroll teams the opportunity to focus on strategic rather than tactical initiatives.

We understand that managed payroll can be a daunting topic, so we’ve put together some useful information to help you make an informed choice about your payroll strategy.

What is managed payroll?

Managed payroll means that an external specialist manages your business payroll functions. Many business owners favour this over an in-house payroll team as it's more cost-effective, saves time and ensures PAYE legislation compliance.

The last year has brought about a lot of changes to payroll and the workplace. Widespread remote working and constant iterations to legislation and payroll policies have accelerated the need to have resilient, reliable and secure payroll solutions.

Workers are looking for increased flexibility, transparency, and personalised packages from employers. Forward thinking companies are prioritising their employee’s financial wellbeing by investing in the right payroll technology.

By moving to managed payroll, also referred to as outsourced payroll, you can hand much of the payroll function over to experienced professionals. The provider contractually agrees to deliver one or more HR or Payroll services in accordance with defined service levels and volumes of work. They also take on risk and accountability, including processing, compliance, scalability, and all the complex and time-consuming administrative work that goes with it.

When to opt for a managed payroll service

Payroll outsourcing can benefit all sorts of businesses across multiple industries. Whether you’re a mid-market company with 500 employees or a large enterprise organisation with 100,000 people, you have a common interest to look after the financial wellbeing of your employees by ensuring they get paid accurately and on time.

Here are some of the reasons a business might opt for a managed payroll service:

  • Maintaining an in-house payroll team is no longer viable, even with a functional SaaS solution, due to security and compliance issues when a high percentage of the team is working remotely. 
  • Educating and upskilling the in-house payroll team on the latest legislation and policies is time consuming and hiring an external HR consultant to help is expensive.
  • As the business has grown across multiple locations and territories, the payroll processes are becoming too complex for the payroll team to handle.
  • Internal services are overheads eat into your P&L.
  • Your organisation is focused on business revenue efficiency and effectiveness. Payroll processing is not seen as core to your business because it doesn’t contribute to the bottom line. 
  • Statutory compliance of the in-house process is a concern. A service provider would implement the financial controls and audit businesses need.
  • They would rather pay for a contractual quality of service than for hardware, software and resources.
  • They don’t want to contend with annual upgrades, patches, outages, sickness, holidays and payroll resource turnover.
  • They want a service provider to take full contractual accountability for the service. Suppliers cope with peaks and troughs throughout the year.

The opportunity to move to simplified and standardised processes improves contingency planning and business continuity – as in-house payroll knowledge is often contained within one or two key staff members.

There are many different reasons why moving to managed payroll could suit your business now and in the future. It’s wise to look at the value that outsourcing brings, including compliance, employee engagement, cost saving, accuracy and guaranteed service levels.

Managed vs in-house payroll

If in-house payroll vs. managed service is keeping you awake at night, or you’re just starting to research the options, here are the key differences:

  • With a managed service, the provider takes on risk and accountability; including processing, compliance, service levels and scalability.
  • In-house payroll requires the customer to maintain payroll processing expertise and resources. You’re in charge of processing all elements of the payroll and all associated administrative tasks. Plus, it’s your responsibility to ensure your system is compliant, secure and reliable.

There are pros and cons for both outsourcing payroll and in-house managed service. The burning question is what suits your business and culture? Regardless of any payroll outsourcing myths, hearsay or preconceptions, we encourage you to think about your own situation and explore what would make a real difference to your Payroll & HR delivery.

The benefits of payroll outsourcing

The advantages for organisations outsourcing payroll are numerous and span across efficiency, productivity and confidence that your payroll is in the right hands. Here are some of the main benefits of switching to a managed payroll service:

Avoid HMRC penalties

HMRC paperwork and returns require careful attention, as any mistakes or late submissions could result in a penalty. HMRC will charge you a penalty if you submit any paperwork that contains errors, or misrepresents your tax liability, equally if a HMRC assessment understates your tax liability, you can also face a penalty if you don't inform them.

Financial compliance is one of the toughest areas to manage, especially if you’re running global payroll. Employment legislation and HMRC requirements are always changing and it’s a constant battle to keep up to date. Working with a managed service specialist means you, the customer, can rely on the provider’s ISAE3402 financial compliance controls, plus investment in on-going payroll training and career development.

Increased flexibility & scalability

Outsourcing offers a variable payroll cost base which is much more elastic with a greater ROI and is scalable as your business grows. You may consider your business model to very predictable with a fixed workload processing cycle, but in light of recent disruption to the global economy and working arrangements, we should all be expecting the unexpected. Is your current payroll agile enough to cope with drastic change overnight?

Reduced cost of ownership

Outsourcing is an investment and can be financially justified to stakeholders. When you consider the direct costs a reliable payroll provider can absorb such as infrastructure and data security, plus the indirect costs like compliance and Payroll/HR expertise, you can reduce your Total Cost of Ownership by at least 20%.

Managed payroll solutions are designed to save time, which also saves money. A solution from an expert supplier will accurately inform financial decision-making across the business thanks to real-time calculations and powerful analytics.

Increased security

Having an managed payroll solution can enhance security. The costs and resources that are involved are sometimes difficult for organisations to manage internally to ensure absolute security and accuracy. At the heart of the solution of a reliable provider is the confidentiality, storage and protection of customer data in compliance with legislation such as GDPR.

What makes a quality payroll provider stand out from others? Look for the ISO27001 certification, an international standard and a key indicator that the payroll provider takes security of information and processing your data seriously.

Peace of mind

Ultimately, managed service gives you peace of mind that your payroll and people are being looked after. With changing work patterns and pay frequencies on the horizon, you should feel confident to offer your people personalised, flexible packages that payroll can keep up with.

Integrate your existing HCM system

If you already have a Human Capital Management (HCM) system that works for your business, it can seem like a lot of work to change things. So, what do you do if you want to keep your HR solution but outsource your payroll?

A reputable managed payroll provider will have the technology and knowledge to integrate with your HR partner or system, whether you’re using a global HR solution or a local HR system.

Stronger together, an integrated Payroll and HR system enables businesses to become agile and competitive through gaining a ‘single source of truth’ relating to employee data. Successful integration enriches the employee experience and provides invaluable business intelligence.

What do you do if you want to keep your HR solution but outsource your payroll? A reputable managed payroll provider will have the technology and knowledge to integrate with your HR partner or system, whether you’re using a global HR solution or a local HR system.

Here are a couple of examples of SD Worx’s payroll service integrates with global HR solutions:

Workday and managed payroll

We have been a Workday GPC Partner since 2014, originally with a PICOF now PECI certification. This certification means the end-to-end (Workday to Payroll) scenarios have been validated by Workday.

SAP and managed payroll

SD Worx managed payroll effortlessly integrates with SAP HCM services through an AFI connection.

Oracle and managed payroll

SD Worx managed payroll integrates with Oracle in a seamless manner through an AFI connection.

How much does it cost to outsource payroll?

There is no one-size-fits-all when it comes to the cost of payroll outsourcing, as this will depend on the payroll provider and the size of your business. However, most payroll providers will charge a set-up (or implementation) fee to transfer all your payroll data onto their technology and get up and running. They will also charge a fee per employee processed per month (PEPM) or per payday depending on your payday frequency. In addition, you might pay a bit more if you opt for additional payroll services like P11D.

What to look for when choosing a managed payroll provider

Your managed payroll service is only as good as the vendor providing it for you. With so much at stake, ensuring your payroll is working for your organisation should be a priority. If you’re considering a new system, we’ve pulled together some questions to ask potential suppliers.

1. How secure is your data?

Your payroll vendor, as a data processor, needs to demonstrate that they have stringent controls in place to comply with data security and privacy legislation in different regions, such as GDPR.

  • Check their accreditation, including ISO 27001 certification
  • Where is their data centre and who has access to it?
  • What is their disaster recovery model? No buts, there must be one in place!

2. How easy (or difficult) will it be to implement?

Before you sign the contract, get clarity on the implementation process. You’ll want to start reaping the benefits of managed payroll as soon as possible, especially if you’ve got stakeholders to impress.

  • Do they manage the entire process, or is there the option to self-manage to speed things up?
  • Can you upload information from your existing system – and if so, how quickly?
  • How will downtime be minimised?
  • What support is available for the implementation period? A whizzy system that no one understands is sure to be an anti-climax!

3. What additional support services are offered, and at what cost?

Access to global HR experts with local knowledge can really add value to the service. Payroll legislation is ever-changing and can be very complex, but a great payroll provider goes beyond providing compliance – they help you understand it too.

  • How are legislative changes implemented, and is support and guidance offered?
  • Can they guide you through the pitfalls, especially when it comes to complex payroll issues that you can’t afford to get wrong?
  • Can they offer support with other payroll-centric services that would make your life a whole lot easier, such as benefits in kind, expenses, and pensions auto-enrolments?

4. What credentials and specialisms do they have?

It’s crucial that your chosen provider can be trusted to pay your people, so dig a little deeper into their credentials and client history, especially if you have complex payroll requirements.

  • Find out early if a provider can accommodate your needs. Not all vendors are able to process Expats or pay employees in the Channel Islands, for example.
  • Ask, or research, whether they have other similar customers in terms of size, sector and geographical reach.
  • Request references and have a good look at the case studies and testimonials on their website.

5. What’s their support model?

Your managed payroll partner should act and feel like an extension of your own team, always reachable and supportive of your needs.

  • Do they have a support SLA (service level agreement) to establish expected response times?
  • What are their support channels like: online resources, live chat, ticketing system, phone lines with 24/7 availability? There’s nothing worse than lack of support when you’re having a payday panic.
  • How does their technical support differ from HR expertise support? Hint: you are likely to need both.

These questions will help you build up a picture of your chosen supplier. Ensure they are experienced, credible and easy to work with – after all they will be an extension of your payroll team, so a good relationship goes along way.


6. Can they integrate with HR?

Seamless integration with your chosen HR or workforce management (WFM) solution is a must for competitive and agile businesses. Make sure that your managed payroll provider can facilitate your integration needs.

  • Find out whether they can integrate with external HR and WFM solutions from the start, and whether there is an additional cost for integration.
  • Ask them to provide testimonials and case studies about customers that they have successfully integrated HR or WFM.
  • Ask them to explain their integration methodology.

How long does it take to implement managed payroll?

It’s common for businesses to put off making the switch to a new managed payroll provider for fear of downtime during the set up and implementation phase. After all, you want to ensure that your employees get paid accurately and on time.

Implementation might sound scary but moving your payroll from an in-house model to a managed service doesn’t take nearly as much time and effort as you might have imagined. For example, if you decide to move to SD Worx’s managed payroll service you could expect to be live in just 14-18 weeks depending on your business and how many parallel runs you require.

Launch – Week 1-2

  • Engage Implementation Teams
  • Kick off meeting
  • Project Planning

Discovery – Week 2-5

  • Requirements capture
  • Discovery Workshop(s)
  • Customer Data Preparation 

Setup –  Week 5-7

  • Solution Setup
  • Customer Training
  • Test Preparation & Data Migration 

Test – Week 7-14

  • User Acceptance Testing
  • Live Data Migration
  • Parallel Run (1 or 2 cycle) 

Go-live – Week 14-18

  • Go Live
  • Hypercare
  • Service Transition 

You’ll be assigned a project manager to guide you through the entire process. They will make sure you are engaged with the SD Worx Implementation team so that you have a shared view of what is being delivered by who and when.  

Building the business case for outsourcing

Now is the time to consider your payroll growth strategy and identify gaps that will eventually need to be addressed. Could outsourcing help you achieve future growth?

Outsourcing your payroll may seem like a big step and met with resistance, but we are here to help you make the right decision. To thrive in a digital and people-first workplace, your organisation needs to invest in the payroll function to meet the needs of the future workforce sustainably.

There are strong commercial justifications for outsourcing your payroll with immediate and long-term benefits for not just HR and payroll teams, but for the wider business. Reducing your total cost of ownership, turning fixed costs into variables and increasing accuracy and compliance are just some of the reasons that outsourcing payroll will transform your business and lead you closer to your growth goals.

Our dedicated and friendly payrollers know everything there is to know about managed payroll. So, if you need some more advice, or you’d like to chat about your business priorities, we’ve got your back. Or if you’ve already made your mind up and have decided payroll outsourcing is for you, then we can help you create a solid business case to convince even the most sceptical of business leaders. 

The unshakeable business case for outsourcing your payroll

Here are some of the fundamental whys and whats you need to make an airtight plan for future-proofing your payroll.


Download the guide

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