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Many employers investigate the possibility of outsourcing their payroll function and for some it can make sense to outsource.
Handling the payroll requirements can be a difficult and laborious process and outsourcing this function can be beneficial for employers looking to streamline their processes and increase efficiency.
But, as with any business decision, there are multiple issues to consider and both options offer a different mix of advantages and disadvantages.
Below, we set out a comparison of some of the issues to be aware of when outsourcing your payroll versus choosing to do it in-house.
Why should you outsource payroll?
Expertise
Payroll is a complex and time-consuming process. By outsourcing, you can use specialist, skilled help to handle your payroll requirements. Processing payroll in-house can be challenging. Using an outsourced payroll function can free up more time for your staff to attend other business areas, therefore creating more opportunities and raising efficiency in the business.
Cost savings
The overall cost of retaining a payroll specialism in-house can become expensive. By outsourcing you can save on the cost of hiring specialist payroll staff. There are also costs for payroll software and training costs.
Penalties
There are significant regulatory non-compliance penalties for failing to meet payroll deadlines and for compliance failures. Outsourcing your payroll can help if meeting these requirements is proving problematic.
Choosing what to outsource
Most outsourcing companies allow you to choose how much of your payroll and compliance tasks are outsourced. This can be beneficial for employers that only want to outsource part of the payroll function
Real Time Information (RTI)
The introduction of major changes to the way PAYE information was collected began with the introduction of the RTI system in April 2013. The system involves employers sending HMRC information about tax and other deductions from employees' pay when the employee is paid, rather than at the end of the year. Whilst this system offers many advantages it has made payroll a more labour-intensive process and outsourcing may help.
Complex requirements
As part of the payroll process it is necessary to calculate the correct amount of Income Tax due alongside calculating other deductions such as National Insurance, pension contributions, student loan and child maintenance payments.
Changes in payroll rules
The payroll rules change frequently so it is important to ensure that the process for calculating pay and benefits is kept up to date.
Cost cutting
The cost of outsourced payroll can lower costs but obviously each employer needs to consider their circumstances on a case-by-case basis.
Smaller companies
The cost per employee of maintaining a payroll function in-house can be significantly more per head when there are fewer staff. This could mean that the use of outsourcing makes more financial sense.
Benefits of keeping payroll in-house
More control
The most important reason usually cited for keeping payroll in house relates to a loss, or perceived loss of control, when dealing with your employers. By outsourcing the payroll function you are required to share access to sensitive data such as employees’ names, salaries, bonuses etc. By keeping payroll in-house, you can keep your employees’ information private.
Lower cost
Contrary to what many payroll providers will argue, it can be the case that keeping the payroll function in-house can actually lower cost over time. Having a payroll specialist in-house can also be beneficial. However, depending on the size of your business, this may not always be the case.
Data security
One of the biggest concerns for employers when it comes to outsourcing payroll, and the processing of it, is data security. If employers do decide to outsource their payroll function, they will need to ascertain what safeguards are in place to ensure their data is secure.
Checking payroll
Ultimately, an employer is still responsible for checking that their payroll is correct. If this function is outsourced, the employer still needs to spend time checking that all payroll related submissions are correct. Even by outsourcing, there is no way of avoiding this important function within your business.
If you're looking to find out more about payroll, you may be interested in our previous articles:
If you have any questions about the issues raised in this article, we at Key Business Consultants can help. We have experience as external accountants who can compliance check your business and represent you well with the authorities. Get in touch with us today or call us directly on 02037 282 848.
