In-house vs outsourcing payroll costs – is outsourcing payroll cost effective?

29 June 2021 - Reading time: 5 Minutes

Technology

If you’re thinking of moving your payroll responsibilities away from your in-house staff and to an external provider, one of the first things you’ll need to consider is how outsourcing payroll costs will stack-up against your current outlay. Of course financial costs are the main consideration, but it’s also worth thinking about time-savings too. After all, in business, time is money.

Most outsourced payroll service providers will tell you that they can save you money by taking care of salary, pension and benefits management. But is outsourcing payroll cost effective in real terms?

Well, yes, it is – and here’s why…

Why payroll outsourcing prices = company savings

Before we look into the core benefits that payroll outsourcing prices can represent to your business in comparison to managing things in-house, you need to consider the workloads involved.

If you employ around 100 members of staff within your organisation, the workload of managing all aspects of your payroll is quite significant. For each employee in your workforce, there’s lots to be done, such as:

  • Setting up and maintaining staff records
  • Employee schedule management
  • Holiday leave/sick leave
  • Taxes and national insurance calculations
  • Shift allowances
  • Timesheet management
  • Reporting

To keep your payroll system running smoothly for a business of this kind of size, you’ll probably need to hire two - maybe three - dedicated payroll staff to keep on top of everything. With the current average salary of a payroll administrator set at £25,000, that’s a huge outlay.

So if you adjust this comparatively for your company’s size, you start to get an idea of the salaries you’ll need to be covering to manage your payroll internally. This gives you a great starting point when you start to compare outsourcing payroll costs with the investment needed for permanent staff.

One major benefit of using an outsourced payroll service is that the provider’s team will be organised in such a way as to provide the maximum efficiency, with specialists in different areas all working towards to same goal – to distribute the workflow for a fast, accurate service. At the same time, your internal teams can now devote more focus to other business activities, such as those that will drive growth… bringing more money in, instead of spending it on additional staff.

Outsourcing payroll – cost savings that make sense

Here are some of the key reasons that payroll outsourcing prices will work out to be lower than using your own internal resources…

Fixed payroll outsourcing costs

Things change, and your business needs to adapt accordingly. As your payroll requirements alter - or if something needs extra attention - it can be hard to flex a static internal team to rise to these challenges efficiently. If you’re outsourcing your payroll, your provider will have the capacity to adjust accordingly as workflow increases, complexities arise or anything changes.

Payroll technology savings

If you’re managing your payroll in-house, it’s not just staffing costs you need to consider. You’re also fully responsible for all the equipment, software and associated licences and hosting costs that come hand-in-hand. Not just buying and installing it, but maintaining it too. This means diverting your IT team away from other matters to deal with glitches, outages, patches, updates and upgrades – representing an additional cost on top of the original technology investment. Plus there’s desk space, general computer equipment and an additional load on your business amenities and facilities.

Outsourcing payroll to avoid potential penalties

There’s a science to compliance – and the formulas are ever-changing. Your HMRC submissions need to be accurate and on-time, otherwise you’ll face financial penalties. The bigger the problem, the higher the penalty cost, but payroll outsourcing allows you to put this in the hand of trusted professionals who will ensure your complete compliance at all times.

Security and data compliance

Payroll management involves the storage of a lot of sensitive data, so if you’re taking care of it in-house, you need to make sure your security measures are robust and that all the information you hold is stored in accordance with data compliance legislation, such as GDPR. For your complete confidence, choose an outsource payroll partner that carries the ISO27001 certification.

Access to advice

Payroll covers all kinds of things, and is impacted by HMRC legislation and employment law too. Can you be sure that a busy internal team under fluctuating levels of pressure has time to keep completely up-to-date with this? What about getting advice on how any changes impact your payroll system and calculations? Any kind of consultation comes at a cost, but your payroll outsourcing prices will already have this covered – so you know you’re always in-line with the latest legislative requirements, without having to pay for additional advice.

Staff training

Another way you’ll save costs by outsourcing your payroll is in staff training. Whether you’re upgrading your payroll system, adding a new functionality to your existing software or bringing your team up-to-speed with compliance issues, training comes as a price – both financial and time-wise. Something you’ll never need to worry about if you outsource to a specialist payroll partner.

Troubleshooting

If something goes wrong with an employee’s salary payment or calculations, the buck stops with the person processing the information! If an issue occurs, your team will need to find time to identify the issue, rectify it and field any frustrations from the affected employee – thus holding up other important aspects of their role. These issues when managed externally are much less of a bind to your business, and will save disruptions to your staff’s working day.

Disruption to service/recruitment costs

What if a staff member suddenly gets sick, or decides to leave? Not only do you have the added pressure on your staff (and possible overtime to pay while they pick up the slack), but if you need to replace someone on a temporary or permanent basis, this will come at a cost – from advertising the role, commissioning a recruiter and time spent conducting interviews. On the other hand, any agreed payroll outsourcing prices will cover this kind of disruption. In fact, you probably won’t even know anything has changed.

Conclusion – outsourcing payroll costs less than in-house services

The exact savings you’ll make by outsourcing your payroll to a specialist provider will vary depending on the size of your business and its workforce make-up, but overall you can expect to see a significant reduction in your overheads by moving this crucial and often complicated aspect of your business management to an external partner.

Of course, payroll outsourcing prices will differ depending on the provider too, so it’s worth getting a couple of quotes to make a cost-comparison and reap the maximum rewards.

If you’d like to learn more about representative payroll outsourcing costs, please get in touch with our team for a no-obligation chat.

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