The ultimate guide to payroll outsourcing

Payroll is a famously time-consuming and stressful part of any business, becoming exponentially more complicated the more employees you have. If your payroll is late or incorrect, you’ll see unhappy employees, heightened financial stress, and even fines for non-compliance, so paying your employees accurately and on time is critical.

That’s where payroll outsourcing services come in. Specialist payroll providers can take some or all of your payroll process out of your hands and take care of it for you.

There are several forms this service can take; the most effective payroll outsourcing will account for your unique needs.

Exactly how your payroll service works will depend on the service you choose. Typically, you will give your employee data and any other information required to a provider, who will then manage the payroll for you.

Payroll providers will provide different levels of service depending on what you need and your budget, but the services they offer can include:

• Calculating pay
• Filing taxes with HMRC
• Calculating deductions
• Paying your employees
• Keeping accurate payroll records

Every business with employees needs to operate a payroll department in some capacity, whether that’s as its own entity, or as extra responsibilities put on your HR or finance department. Avoiding errors is critical, as this can delay pay, harm employee engagement and lead to fines from HMRC.

Therefore, investing in a payroll service can remove a lot of headaches, and let you focus on your business goals.

Payroll services are typically seen as a luxury that is only relevant to larger businesses, but small businesses can also enjoy some great benefits. There are three critical reasons why you shouldn’t dismiss the idea of payroll services as a small business.

Firstly, because payroll is a time-consuming task, and small businesses often lack the agility to give the process the time it deserves. Often this burden will fall on your HR manager, which will distract them from the other parts of their role.

Secondly, small businesses may want to scale up, but without a payroll department in place, you’ll quickly run into growing pains.

Finally, small businesses are particularly vulnerable to making payroll errors that lead to fines from HMRC. Keeping track of payroll legislation is a time-consuming task at the best of times, but especially when you’re a small business whose main focus should be keeping the rest of the business running.

Payroll services aren’t a one size fits all fix. There are several different forms that a payroll service can take. Consider which of the following best fits your needs.

This is the traditional approach to a payroll service. The provider will take most of your payroll processes out of your hand (the exact split will depend on your needs), functioning as your own payroll department would.

If you’d prefer to maintain control over your payroll while also making the process simpler, you may prefer a general payroll admin service. This will typically involve having the service team processing your BACS and payslips.

Transactional payroll is ideal for companies that need smaller payroller runs. Typically, this is used by small businesses, but it can also be used by larger companies that have a single UK based employee.

Also known as emergency payroll, this is a quick short-term service that can step in when you’re suddenly without effective payroll resources internally.

By outsourcing your payroll, you don’t have to stress about compliance, new legislation, or maintaining a pipeline of payroll talent. You can rest assured that your payroll is being taken care of by experts, allowing you to keep your focus on other aspects of your business. 

There are plenty of benefits that come from outsourcing your payroll. Here we’ve highlighted the key five benefits that any business can get value out of regardless of how big they are or what kind of employees they have.

Accuracy

Because they’re typically devoted exclusively to payroll, payroll providers utilise software (such as real-time payroll) that can automate a lot of the most labour-intensive aspects of the process. That minimises the risk of errors.

Data security

A reputable payroll provider relies heavily on a reputation for keeping the data they are entrusted with secure. They’ll make sure to invest heavily in cybersecurity features to ensure your data is protected.

Legislation updates

Keeping up to date with government legislation is an incredibly time-consuming task, especially because things keep shifting. Payroll providers will handle that for you.

Cost-efficiency

Payroll services do cost money. However, compared to the costs of having to grow and maintain your own payroll department, as well as the costs of fines that come from noncompliance, you may find that outsourcing your payroll will save you money in the long term.

Free up resources

Without having to stress about payroll, employees can focus more on other tasks that will help grow the business.

The exact cost of a payroll service will vary, depending on the service you want and the number of employees you have. Payroll services needn’t be seen as a luxury, as you can find a package that works for your needs and budget.

The vast majority of payroll providers will work with bespoke quotes rather than being able to give you a price outright, so its best to ask for a quote directly.

If you decide you want to outsource your payroll, there are several aspects to consider to ensure you’re getting the most effective package possible.

If you’re a large company with a lot of employees, then you may already have a payroll department, in which case you might want to consider a general payroll admin package. This will free up your department to focus on higher-level tasks (like data analysis or providing financial wellbeing support to employees). Alternatively, fully managed payroll service will entirely take things off your hands.

If you’re a smaller company, a transactional payroll service would be more effective.

The ultimate goal of a payroll service is to make your business more productive. It’s therefore well worth investigating what parts of payroll are making your business less productive, as this will let you request a more suitable service.

Payroll services do cost money, so you’ll want to weigh up whether the cost savings are a benefit to your company. However, the other benefits you’ll get from a managed payroll service can also reduce the resources you’re using internally.

Payroll should fit into the long-term goals of your business, so make sure you have an idea of what these are and can convey this to your potential provider.

A lot of the biggest headaches in payroll come from a reliance on manual processes. Instead of outsourcing, it may be worth looking into real-time payroll software for your own internal use instead.

With over 40 years of payroll experience and a team of CIPP and IPASS-accredited experts, MHR offers our managed services customers complete confidence in the security and accuracy of their payroll. We can provide a bespoke solution that accounts for the unique needs of your business and your budget.