The UK payroll system plays a crucial role in the smooth running of a business – ensuring employees are paid accurately and on time while complying with legal and regulatory requirements.
35% of UK employees would find another job if they were paid incorrectly even once, and 51% would lose trust in their employer and resent them (Sage, 2023). Statistics like this show the pressure on payroll managers for data accuracy and on-time processing.
As a business grows and evolves, the demands on its payroll department increase and often present a need to assess the advantages and opportunities available within the payroll landscape.
The growth of a business means that its’ leaders have an important decision to make. Do they invest in additional key staff such as payroll clerks, finance managers, and HR support, or do they outsource?
Additions to headcount are expensive, but the perception is they help maintain a level of control within the business, which isn’t strictly true. Enabling key outsourced partnerships at an early stage of business growth can be pivotal to ensuring the chosen partners grow with them.
Business owners are always thinking about growth, productivity, and profitability. The notion that maintaining control over these services gives greater certainty can be problematic and is often contradictory to reality.
In this comprehensive guide to outsourced payroll, we explore:
- the range of payroll outsourcing options
- potential benefits for your business, and
- what things to look out for.
We’ll also share insights into maximising its potential by leveraging specialised outsourced payroll providers.
What are the options for payroll outsourcing?
It’s important to note the scope of services provided by payroll service providers can vary depending on three main things; the type of provider you choose, the specific provider and the package or plan you opt for. It’s advisable to understand what each type of provider offers before selecting one that aligns with your business requirements.
The four types of payroll providers are:
- Accountant
- Payroll bureau/specialist payroll provider
- Professional Employer Organisation (PEO)
- Umbrella
1. Outsourcing payroll to an accountant
The key is to find an accountant that specialises in payroll. They can ensure your payroll is accurate and compliant with all applicable laws and regulations. You are ultimately responsible for any inaccuracies, but they can advise on any change in legislation and deadlines.
When considering outsourcing payroll to an accountancy firm, it’s crucial to assess their proficiency in payroll processing since not all accountants specialise in this field. It’s also essential to review their client track record, and how familiar they are with industry regulations. You need to ensure they cater to the specific needs and scale of your business. Consider the costs involved, the level of service, and the support they can offer.
2. Outsourcing payroll to a payroll bureau/specialist payroll provider
Payroll bureaus specialise in payroll services. They have extensive expertise in payroll processing, tax calculations, compliance, and other payroll-related tasks. By outsourcing payroll to them, businesses benefit from their specialised knowledge, accuracy, efficiency, and time savings. Payroll bureaus may offer services tailored to specific business needs, handle complex payroll processes, and help ensure compliance with regulations. They can often provide advanced payroll software and systems. They offer scalability and data security and allow businesses to focus on their core operations knowing payroll management is handled by experienced professionals.
When considering outsourcing to a specialised payroll bureau, verify the bureau’s reputation, experience, and service offerings to ensure they align with your payroll needs. Confirm their ability to customise services to your unique requirements and enquire about data protection measures. You can compare pricing structures and take into consideration the level of customer support you may need versus what they offer.
3. Outsourcing payroll to an umbrella company
When outsourcing payroll to an umbrella company, contractors or freelancers become employees of the umbrella company. The umbrella company then handles administrative and payroll-related tasks. Contractors submit timesheets, and the umbrella company calculates payments, deducts taxes, and ensures compliance with regulations.
Using an umbrella company can be convenient for contractors who want to focus on their work and prefer to have the administrative responsibilities taken care of by a third party. Using an umbrella company means contractors will become employees for payroll purposes. They may have slightly reduced flexibility and control compared to operating as a self-employed individual. Businesses using contractors, no longer need to worry about IR35 with an umbrella company.
When considering outsourcing payroll to an umbrella company, you should assess the fees and services, and understand any impact of being employed by an umbrella company. Contractors should also consider consulting with professional advisors to ensure the umbrella company services align with their specific needs and circumstances, e.g. IR35.
4. Outsourcing payroll to a Professional Employer Organisation (PEO)
PEOs take on various HR and payroll responsibilities on behalf of a business. One of the key functions handled by a PEO is payroll processing.
With a PEO, they become the employer of record for your employees, while you retain control over their day-to-day work and operations. This includes the PEO taking on responsibility for compliance with all HMRC and Pension Regulator requirements, taking the liability away from you. If you use contractors, you won’t need to worry about IR35 with a PEO. PEOs take on payroll tasks such as calculating wages, deductions, and taxes and ensuring accurate and on-time payment of wages. PEOs also manage tax and compliance matters. This expertise and focus on compliance can provide peace of mind and help mitigate potential compliance risks associated with payroll management.
PEOs also provide businesses with HR services to help them grow. The aim is for the business to be able to focus on growth and rely on the expertise and resources of the PEO to handle all the complexities of payroll, pensions, and HR administration.
When looking at outsourcing to a PEO, factors to consider are reputation, financial stability, compliance track record, experience, level of customer support, data security measures, and understanding of your specific business needs. You should also assess the range of HR services they provide for both employers and employees as part of the package.
What are the benefits of outsourcing payroll over keeping it in-house?
Enhanced data security and confidentiality
Managing payroll data comes with data security responsibilities, such as maintaining up-to-date security measures, regular backups, and staying informed about evolving data privacy regulations. It can require dedicated resources and expertise, depending on the size and complexity of your payroll operation.
Outsourcing to a provider with robust data security measures to protect sensitive employee information will relieve you of this burden. They use secure systems for data storage, transmission, and backup, ensuring confidentiality and compliance with data protection regulations.
Utilise personnel effectively
Outsourcing payroll not only frees up staff members who were previously responsible for payroll tasks but contributes to increased overall productivity and efficiency within the organisation. Where you have capable and flexible staff, you can reutilise them in the business towards core business activities, strategic initiatives, or projects that contribute to company growth. Staff members are empowered to use their skills and expertise, leading to improved performance.
In many cases, businesses do not have a dedicated payroll team, and payroll becomes an additional task for someone to handle. This task is time-consuming and can detract from other important responsibilities. By outsourcing payroll, businesses alleviate this burden. It also enables employees to engage in tasks they enjoy, or ‘signed up for’ ultimately enhancing job satisfaction.
Expertise and knowledge: staying up to date with complex legislation
In most cases, it becomes the outsourced providers’ responsibility to stay updated with changing tax laws, labour regulations, and reporting requirements. They ensure your business stays compliant with these laws, reducing the risk of penalties or legal issues. PEOs and umbrellas take on all liabilities, so any compliance issues sit with them rather than you for complete peace of mind. When outsourcing to a payroll bureau or accountancy firm, check the service level agreement to understand their approach to liabilities.
Scalability and flexibility: adapting to business growth and seasonal fluctuations
Outsourcing payroll offers scalability to accommodate your business growth. It can be great if you have seasonal fluctuations in employee numbers. Whether you need to onboard new employees quickly or downsize your workforce, payroll providers can adapt to your changing needs. This flexibility helps maintain a smooth workflow without the need for significant adjustments to your processes or your headcount. Some providers may charge for this service, so this is something to check as part of your decision-making process.
Streamlined processes and efficient workflow management
By leveraging the expertise, automation, and technology offered by outsourced payroll providers, outsourcing payroll can streamline processes and create efficient workflow management. Benefits include simplifying payroll administration, automating tasks, minimising errors, providing accurate reporting, integrating with timekeeping systems and offering employee self-serve portals. This ultimately leads to increased efficiency.
Technology and automation: unlocking innovative solutions
Many outsourced payroll providers offer online portals or software that allow employees to access their payroll information, e.g. pay slips and P11Ds. This self-service feature reduces administrative work for businesses and empowers employees to manage their payroll-related information. It’s also helpful for employees to have this information in one place should they ever need it for proof of earnings, for example. You may also benefit from outsourcing payroll if handling employee queries around pay, and pensions is a concern for you.
Key Considerations for Choosing a Payroll Provider
We’ve discussed the range of options available when it comes to outsourcing payroll and we’ve highlighted some of the key benefits. If you’re considering outsourcing your payroll, here are four key things to consider before making the transition:
Compliance and data security
As discussed, payroll involves handling sensitive employee information, so data security is paramount. Enquire about the payroll provider’s data security measures, such as encryption, access controls, backups, and compliance with data protection regulations like GDPR. Understand their protocols for data handling, confidentiality, and disaster recovery.
Service level agreements (SLAs) and support
An SLA outlines the level of service and performance commitments between you and the payroll provider. It defines key metrics, such as payroll processing accuracy, response times for enquiries, and issue resolution timelines. Carefully review the SLA to ensure that it aligns with your performance expectations and that the provider is accountable for meeting agreed-upon service levels.
Payroll issues can arise at any time, so it’s essential to understand the support availability offered by the provider. Determine their support hours and channels. Ideally, the provider should offer prompt and reliable support during your business hours to address any payroll-related concerns or questions that may arise. Evaluate their process for resolving issues, their escalation procedures, and the expertise of their support team. Consider how they handle employee queries, the availability of support channels, and the quality of their customer service in addressing employee concerns. Look for providers with multiple communication channels such as live chat and UK-based call centres. Self-service options for employers and employees can also enhance query handling.
Pricing models and cost-effectiveness
Evaluate the different pricing models offered by payroll providers, such as flat monthly fees or per-employee charges, and choose the one that aligns with your budget and business needs. Ensure the pricing structure is transparent, without any hidden costs or unexpected fees. Additionally, compare the cost of outsourcing payroll with the expenses associated with keeping it in-house, such as salaries, payroll software, employee training, tax regulation updates, and the time and effort required for payroll processing.
Assess the overall cost-effectiveness of outsourcing payroll by weighing the financial investment against the benefits gained, such as reduced administrative burden, improved accuracy, compliance expertise, and access to advanced payroll technology. Ultimately, selecting a payroll provider that offers a fair and transparent pricing model, while delivering cost-effective solutions, can contribute to the long-term success of your business.
The transition – implementation and change management
Understand the provider’s implementation process, data migration requirements, and security measures. Assess the training and support provided to ensure a smooth transition and thorough onboarding process.
Conclusion
Before deciding whether to keep a payroll function in-house or outsource it, it’s important to consider your business goal. A business priority is usually growth, so ask yourself do you have the dedicated staff resource for payroll management, and can they scale up rapidly. Is the person managing your payroll already wearing multiple hats? If so, this may spell disaster as soon as a mistake occurs or legislation changes. Are you confident in your process for handling pay queries to avoid an impact on staff retention? Do you have a training policy in place to ensure the payroll team is ahead of all payroll legislation?
Whether managing payroll in-house or outsourcing to specialised providers, organisations can streamline processes, reduce risks, and optimise their resources. By understanding the intricacies of the UK payroll system, evaluating the benefits of different approaches, and implementing best practices, businesses can ensure that their payroll department becomes a strategic asset, contributing to employee satisfaction, regulatory compliance, and overall business success.
Growth Partners’ payroll service
Growth Partners is a payroll provider and so much more. We own a payroll bureau so we have the expertise and scale required for outsourced payroll. We also provide the PEO model combining our expertise in payroll processing, pension auto-enrolment and employee engagement. Growth Partners is a great option if you are looking for a solution that takes on all liabilities with HMRC and The Pensions Regulator.
Our portal-based e-payslips mitigate the risk of data being intercepted with accredited data encryption. We use Amazon Web Services to host our sites, ensuring minimum downtime with extremely high levels of security.
We also provide:
- A range of employee benefits including Employee Assistance Programme (EAP), private GP, pension guidance, and employee discounts.
- A range of employer services, including free unlimited employment law support for the business, occupational health services and reduced rates with recruitment providers.
- A dedicated employee engagement manager to help you and your employees most out of the services available.
- Ongoing employee engagement consultation from our employee engagement experts so you have everything you need to not only ensure your employees are paid accurately and on time but are happy and healthy at work.
We provide all this at a flat rate of £2 per employee per week. And our new support payments offset this even further. Use our payroll cost-saving calculator to see how much you can save, or even earn by outsourcing your payroll to Growth Partners or book a demo here.