An organisation’s payroll team are responsible for some of the most important processes regularly executed within the business. An error in processing, inaccurate SMP computations, non-compliance with UK payroll legislation, tax, pension and NIC calculation issues, all can result in disgruntled employees, a knock to the culture and reputation of the organisation and in some cases, non-compliance and penalties from regulatory bodies.
For many businesses, payroll management rests on a small team who are expected to keep abreast of changing standards and new technologies. The constant changes in regulations, statutory payments and the introduction of payrolling benefits provide complex challenges for any size of team.
The answer that many organisations are finding to manage payroll most efficiently and accurately is hybrid payroll. A blended system where a company can outsource as much or as little of the payroll function as they wish, in a way that best supports them. This is a bespoke solution which takes into consideration their company structure, resources and knowledge base. The standard, regular processes can be managed in-house, if required, while irregular, complex or compliance-heavy actions are completed by an outsourced payroll services provider, such as MSP Payroll.
MSP Payroll can support your organisation with any of the hybrid payroll services mentioned in this article. Speak to our team today to find out more.
What is hybrid payroll?
Hybrid Payrolling, also known as part-managed payroll, is a blend of in-house and outsourced payroll execution. The organisation has an internal team that manages payroll activities and an outsourced payroll services provider for all specialist payroll actions. It is a strategic approach to improve accuracy and efficiency by reducing pressure on in-house teams, who often occupy multifunctional roles or don’t have time to train properly in high-compliance-risk areas, such as statutory pay.
In areas of payroll where there is lots of legislation, the legislation is often changing, or the action isn’t regular enough to require internal specialism, an outsourced provider can significantly boost a team’s performance and reduce the workload to a manageable level.
It is a combination of internal ownership of the payroll process and external resources to bolster areas that require more expertise. With the right partner, such as MSP Payroll, a hybrid payroll structure can improve compliance, accuracy and reduce risk.
Increasing payroll team capacity for as long as is needed
One of the biggest benefits of a hybrid payroll strategy comes when teams need to maintain operational capacity for a fixed period of time. If you find your payroll team is going to be impacted by:
- Long-term sickness
- An unexpected resignation
- Maternity leave
- Paternity leave
- Parental, shared parental, adoption and bereavement leave
Then, adopting a hybrid payroll partner can prevent a drop in resources. MSP Payroll can plug into your team for as long as you need, eliminating the risk that small teams face from unexpected absences.
In-house payroll vs outsourced payroll
If your team handles the regular monthly payroll without issue, but then finds the additional payroll processes, such as statutory payments, payrolling their benefits or compliance with the Alabaster Ruling, complicated and beyond their expertise, then supporting the team with an outsourced provider could bring significant benefits to the organisation.
A hybrid payroll model is often perfect for (as an example):
- organisations with small payroll teams
- employees managing a blended HR/payroll function
- companies with fluctuations in employee numbers, either from seasonal or project-based services
- a large employee percentage with irregular hours, where SMP calculations, or holiday entitlements, are complicated calculations
- organisations that provide a wide range of taxable benefits, incentive schemes, or require pension support.
A hybrid system can also scale well for start-ups or rapidly growing businesses. By keeping a lean in-house payroll team and outsourcing additional work, a start-up can avoid the classic growing pains or recruiting expertise at pace.
If your organisation fits any of the profiles above, then speak to our team about hybrid payroll.
Blending both payroll strategies
Hybrid payroll strategies work at their most efficient when the responsibilities and management structure for in-house and outsourced are clear from the beginning. The in-house team should have a clear list of priorities and processes they are responsible for, and the outsourced payroll services provider will require a service level agreement and lines of communication to management.
Important elements to define include who has responsibility for communication with employees, the quality of data and the software being used by both teams, the hierarchy and process for sign off on processes and compliance/governance for all activities.
Internal oversight for the outsourced service is also important. Colleagues assigned to managed external payroll processes don’t need to be experts in topics such as SMP, BiK or salary sacrifice, but should know enough to be able to maintain a high quality and compliance from the payroll service provider.
Which payroll process could be outsourced?
Termination payments
Calculating termination payments for staff receiving redundancy or compromise agreements requires expert knowledge of complexities such as tax thresholds. Outsourcing termination payments can improve the efficiency and accuracy of the process and mitigate the risk of tribunals and poor reviews.
Find out more about termination payment support here.
Statutory payments
Statutory payments are complex and change regularly depending on government legislation and position. The time and resource required to calculate eligibility, process tax and NIC correctly and keep up to date with changes means there are significant benefits to outsourcing statutory payments.
SSP, statutory maternity pay, shared parental pay, and statutory paternity pay can be tricky to process accurately. Dedicating external expertise will improve compliance and accuracy.
Casual workers and variable pay
Employees who work irregular hours, or casual workers, create several complexities for payroll teams. Holiday entitlement, statutory sick pay, and auto-enrolment pension eligibility are all impacted by the hours and the pay received by casual workers.
The specific elements require specialist knowledge of payroll legislation and, therefore, are perfect for outsourcing to a payroll services team such as MSP Payroll as part of a hybrid strategy.
Benefits in Kind, Pensions and Salary Sacrifice
From April 2027, Benefits in Kind will be processed and reported to HMRC through the payroll. Understanding BiK and calculating the tax and NIC implications for an employee with a company car, for instance, is a specialist skill. For many teams, Benefit in Kind is the process most likely to result in errors or inaccuracies, thanks to the wide range of different benefits that fall within the criteria. A payroll service provider will have expertise throughout their team to help with employee calculations, significantly reducing the risk of disgruntled employees.
Workplace pensions, eligibility and contributions can also be complex. Knowing which employees should be auto-enrolled, managing employees paying into different schemes and ensuring all contributions are made correctly requires experience and knowledge. Outsourcing these processes will alleviate pressure on internal teams and increase compliance.
Many organisations now offer salary sacrifice in exchange for a wide range of non-cash benefits for employees, such as cars, bikes or expensive technology. Knowing how to process salary sacrifice through payroll, while ensuring the tax and National Insurance Contributions are correct based on the new gross pay, is another detailed area of expertise that is well-suited to a hybrid payroll strategy.
Speak to us about hybrid payroll here.
BACS payments to employees
Paying your staff via BACS is complex, time-consuming and expensive. MSP Payroll can provide support to your team by reviewing and facilitating BACS payments on your behalf. Find out more here.
Leavers and New Starters
Processing leavers, with their final pay, deductions, pension and any bonuses or incentives, can provide challenges with accuracy and calculations. A Payroll Services provider such as MSP Payroll can complete, consult or review calculations or handle your new starters and leavers data for you.
Compliance and governance benefits with hybrid payroll
Legislation is changing all the time for payroll processes. Whether it’s tax, BiK payrolling, or the Employment Allowance, there is always something that needs updating, training, or governance. This is a real challenge for in-house teams, on top of their already busy workload.
External services have more resources to keep pace with changes as they are announced and implemented. Your outsourced payroll services team can provide regular updates to in-house payroll employees.
Payroll services providers such as MSP Payroll also provide continuity for your payroll teams. Knowledge, data and expertise are maintained across the whole organisation, so if one person leaves your in-house payroll team, the expertise is maintained through your outsourcing partner.
This leads to increased compliance and a much more coherent and management governance structure.
How can MSP Payroll help?
Our experts can provide comprehensive support across a range of Payroll consultancy and support, including:
- A fully flexible hybrid payroll service. We can provide:
- Consultancy
- Data review
- BACS Payments
- Termination payment calculations and execution
- Support during employee absences
- Tax code updates, and processing starters and leavers
- More explained here
- Ongoing payroll solutions, either fully outsourced to our team or supplemental support for your in-house payroll expertise.
- We are specialists for all payroll regulations and provisions, including SSP, SMP, pensions, seasonal payments, PAYE and National Insurance Contributions.
Contact us here if you would like to discuss implementing payroll support.
Hybrid Payroll: Frequently asked questions
Can hybrid payroll services be provided on a short-term as well as a long-term basis?
External specialist support can either be on a consultancy basis or as a full outsourced payroll service. If you have a temporary dip in resources for your in-house team, then you can rely on an organisation such as MSP Payroll to provide a hybrid solution until your team is back up to full capacity.
Does a hybrid payroll strategy require new payroll software?
The short answer is no, hybrid payroll services from MSP Payroll are incredibly flexible and are designed to complement your organisation, not increase its administration or overheads. We can work with any payroll software, and our services range from fully outsourced services to consultancy and data review.
What should an organisation look for in a hybrid payroll provider?
Find a payroll services provider with extensive experience in handling outsourced payroll processes. MSP Payroll is a member of the CIPP.
Speak to us, and we can provide more information on the benefits of a hybrid payroll strategy.
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