Thousands of businesses find bookkeeping, financial admin tasks, and payroll time-consuming or have discovered that keeping pace with routine submissions and calculations limits the capacity of in-house teams to focus on other areas, such as marketing, client liaison and management reporting.
Other companies are concerned about the potential for payroll errors, which could affect regulatory compliance and workforce confidence that their hours, tax deductions, bonuses, commissions, and other aspects of their remuneration packages will be paid promptly and correctly.
Delegating responsibility for payroll to an external service is one potential solution, where a team of professionals handle weekly or monthly payroll calculations, processing and submissions to ensure even complex payroll arrangements are well managed.
This article from the business accounting specialists at James Todd & Co explores the benefits and possible pitfalls of outsourcing payroll and explains how the process might work on a regular basis.
Why Do UK Businesses Outsource Payroll Processing to an Accountancy Firm?
Payroll is part and parcel of running any business that employs staff, whether you have one employee or 10,000. While the basics of payroll reporting are fairly straightforward, the difficulty may be that mistakes or delays can be serious, where staff are not paid on time or find that additional payments such as overtime or mileage claims have not been accounted for.
Reports have shown that payroll errors cost UK businesses in excess of £150,000 every year. During a one-year period, 91% of companies made some type of error each month, primarily because 72% of businesses continue to use manual payroll processing systems.
It is essential that every employer handles payroll as a priority, accounting for various factors such as:
- Changes to the National Minimum Wage and National Living Wage.
- Variable student loan deductions.
- Reforms to tax brackets, rates, National Insurance Contributions and PAYE codes.
- Auto-enrolment pension regulations.
- Flexible pay rates for part-time or occasional workers.
Larger corporations may have comprehensive payroll management systems but find that the time spent processing payment runs leaves insufficient scope for other areas. They might prefer in-house finance colleagues to concentrate on analyses of staffing costs per department or calculating contrasts between payroll budgets and productivity outputs.
If any of these elements of payroll management present an issue, outsourcing may be a good idea – but it remains important to be aware of any downsides.
How Does Outsourced Payroll Work?
Most accounting firms that offer payroll services use well-established and trusted payroll systems, such as Sage Payroll or QuickBooks, to manage client payroll. They enter all the relevant information provided by the business and often set a defined cut-off point for changes to be made before each month end.
If staff are paid on a salaried basis and there are no changes, the company might instruct the payroll provider to continue as normal – or they may need to notify them if they have approved expense claims to be paid or have received an HMRC notification about a change to an employee’s PAYE code.
The rest of the process is left to the outsourced payroll provider, who confirms payroll has been run successfully, and makes individual payslips and reporting available to download from a secure server.
Companies may be able to choose between basic payroll services and more advanced packages, where the service provider is tasked with everything from compliance monitoring to liaison with HMRC. There are two typical options you might choose between:
- Outsourcing payroll to your bookkeeper or accounting firm.
- Using a specialist company that offers payroll services.
As with all decisions related to financial management, we recommend you review the pros and cons and the cost of the service vs. in-house cost savings before making any firm choices about the right way forward.
What Are the Advantages of Outsourcing Company Payroll?
The biggest reason a business might opt to delegate payroll to an external provider is to improve accuracy and free up time.
Some of the benefits may include:
- Enhanced efficiency, ensuring managers, supervisors, and senior leadership teams can rely on their payroll provider to complete payroll processing on time, with no potential for errors.
- Reduced costs, limiting the time in-house colleagues spend on payroll, often with a fixed fee per month or based on the workforce size.
- Convenience, where administrative staff can download payslips to circulate or share digital copies of payslips with the workforce as appropriate.
- Precise reporting, with monthly payroll reports that clearly state overall costs and that can be used to analyse staff-related overheads, such as the cost of staffing per department.
- Lower overheads without any need for the business to invest in payroll software and regular systems updates or incur the cost of add-ons to enable them to run payroll from their existing bookkeeping system.
If you find yourself rushing to complete payroll at the end of the month, or triple-checking the figures before scheduling a BACs transfer to your staff for fear of errors, the benefits of outsourcing your payroll may also include valuable peace of mind that your payslips and reports are correct.
Are There Downsides to Outsourcing Payroll?
Outsourcing any in-house process incurs a cost, and it is important to have a clear idea about what you are expecting to pay each month and how quickly that might change, such as when recruiting new staff.
Organisations with an outsourced payroll service will also need to remain up to speed. They will still be responsible for informing a payroll provider if they award a pay rise or additional bonus, notifying them about approved overtime or commissions, and ensuring that start and leaving dates are quickly updated.
The norm is for a payroll service provider to issue a service level agreement, setting out what they will do, how often, what services might incur an additional cost, and what happens if a problem occurs, such as an employee reporting a mistake on their payslip. It is hugely important that your business chooses a reputable, reliable service provider and can be confident that any such errors are swiftly investigated and rectified.
The key takeaway is that payroll outsourcing can be beneficial in some circumstances. However, it carries with it a number of considerations to ensure that any service you select provides good value for money, reliability, and a lower cost than managing your payroll in-house.
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About James Todd & Co
James Todd & Co have been providing accounting services for more than 30 years across Chichester, Fareham, and Lavant for Sussex and Hampshire businesses. Their clients trust them to provide bookkeeping, financial auditing and compliance, management accounting and financial advisory services.
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Source Company: https://www.jamestoddandco.co.uk/
Published by: Steve OBrien