Processing payroll accurately and efficiently is one of the most important responsibilities an organisation regularly executes. As a result, it is also stressful for in-house teams, fraught with complications, and inaccurate payroll processing can expose the business to significant risk to reputation, employee morale and litigation.
Companies have two main options for managing payroll: through a dedicated team managed in HR or finance, or through outsourcing it to a payroll service provider such as MSP Payroll. In this guide, we compare the two approaches and take an impartial look at the benefits of outsourcing vs an in-house payroll team.
In-house payroll vs outsourced payroll – a quick summary
Below we have the key benefits and areas to investigate further when considering outsourcing your payroll department.
- Outsourcing your payroll involves contracting a third-party specialist to execute all of the processes required to pay your employees each payment period. You work in partnership with your provider, but pay them to complete the bulk of the payroll administration and management each month.
- Transferring payroll to a third-party provider should be a fully project-managed process. Professional payroll services, such as MSP Payroll, are experts at helping clients through each step.
- There are significant hidden costs when managing payroll data in-house, and outsourcing can remove many of those resource restraints.
- When you’re ready to start your search for a Payroll Services Partner, create a clear brief and set down your objectives for your payroll processes
- Look for a payroll services specialist that combines expertise, communication and dedicated client partnerships, such as MSP Payroll.
If you are interested in more information about migrating your payroll to a specialist, then please don’t hesitate to contact us.
What is outsourcing payroll?
We already have a great article on why you should consider outsourcing payroll, including what payroll outsourcing actually is. In short, however, it involves contracting a third-party specialist to manage and execute all activities related to paying your employees. This could also include pension contributions, benefit in kind calculations, executive team remuneration, employee payments and payroll governance and compliance. A specialist, such as MSP Payroll, will also handle complex payroll specifics, including student loans, maternity leave calculations, the Alabaster rule, multi-tiered payment structures, and holiday pay.
Most providers will utilise payroll software that will automatically track and calculate your employees’ salary periods, and this will also manage tax contributions based on role profile, earnings and salary history. As the client, you work in partnership with your payroll specialist to ensure each month runs smoothly, but the bulk of the work is handled by the third-party company.
MSP Payroll has a long history of professionally managing payroll processes for clients, including governance and compliance support. Speak to us today to find out more.
The pros and cons of outsourcing
What are the key benefits and the considerations you should make before your final decision? Below we have the main pluses and minuses, as well as recommendations from the CIPP about outsourcing payroll, too.
The pros of outsourcing:
Ensuring in-house resource time is spent on the right activities
Payroll is an extremely important regular activity for any organisation with employees. When it is managed in-house, there is a significant requirement in time, headcount and expertise, just to manage the routine payroll processes, without factoring in exceptional factors such as shared maternity leave calculations or director’s NI.
In smaller HR service teams, this drain on time often results in other projects being pushed to the wayside. Human Resources should be devoting their resources to improving employee skills, recruiting the best talent and enhancing employee engagement and productivity. By outsourcing payroll management to a professional service, such as MSP Payroll, Human Resources personnel will be free to tackle other big projects that will have a positive and direct impact on profitability and production efficiency.
There are also positive impacts on other departments with stakeholder interest in payroll, for instance, line managers and finance teams will also benefit from less time spent on tasks related to paying employees.
Payroll expertise available whenever you require it
Payroll is complicated, each employee is different, and this means that payroll teams need to factor in tax codes, social benefits, company benefits and complexities such as maternity leave. Hiring and managing this expertise in-house can be costly, with recruitment and retention key to keeping the right resource levels in the organisation. If that resource leaves, or doesn’t meet the organisation’s expectations, then the accuracy and performance of payroll suffers.
Outsourcing payroll to an established organisation specialising in payroll services can solve this issue. Rather than hiring one or two experts, outsourcing provides access to a team of payroll professionals with deeper knowledge levels in the intricacies of payroll provision. With outsourcing, you aren’t reliant on one or two individuals in your team and usually at a more cost-efficient rate; instead, you reduce risk and increase performance.
Speak to MSP Payroll and ask about the experience and expertise we can provide your business.
Proactive governance and communication about payroll legislation.
Payroll regulations change, sometimes in incremental amounts, such as the increase in BiK company car tax, sometimes significantly, such as the Payrolling of Benefits in Kind. When managing payroll in-house, staying ahead of these changes, understanding the ramifications and implementing them in a compliant manner takes skill, time and resources.
An outsourced payroll professional will proactively update and educate your HR and finance teams each time new regulations or changes are announced. They will ensure your processes are compliant, and will support your teams with governance across your organisation. Your management team won’t have to scour the internet after each budget, trying to find out how your business will be impacted; your payroll partner will do that for you.
MSP Payroll works alongside our family of businesses, including MSP Company Secretarial, to help organisations manage their governance and compliance. Speak to us to find out how.
Things to consider before outsourcing:
Project managing the transfer of payroll management
As outlined in the CIPP’s article on in-house vs outsourcing, transferring payroll management from an in-house team to an outsourced provider isn’t a quick press of a button. There are many considerations to factor in, such as data protection, accuracy of payroll and employee data, stakeholder management and communication. These elements must be effectively project-managed, and an internal payroll owner nominated for an outsourced provision to work effectively. Professional payroll specialists, such as MSP Payroll, will work with you hand in hand through each step to ensure that when the transition is completed, the organisation gets the maximum benefits from outsourcing payroll.
Instant access to payroll services
If you outsource payroll services, then you need to choose a provider who becomes an integral part of your team. There will be times when rapid changes will require instant access to your payroll information, and having the right partner is then essential. To mitigate against this risk, ensure that you fully project manage the transition process and include communication and crisis management in your request for proposals.
MSP Payroll has extensive experience working in partnership with all sizes of organisations. We become part of your team and proactively work with you to ensure your payroll management is easy.
The cost comparison of outsourced vs in-house
Managing payroll in-house is expensive and reliant on recruitment and retention skills within the business. To meet HMRC’s Making Tax Digital pledge, your organisation will require an up-to-date SaaS payroll software platform, plus ongoing maintenance support in case the software fails or crashes at a crucial point. You will need a member of staff qualified to manage payroll processes and trained to use the software correctly. You will also need support from the finance and legal teams to support your payroll department. The organisation will need to allow the payroll manager time to keep on top of legislation or regulation changes, and also requalify or upskill as the profession demands.
You then also have the cost of fixing errors, managing employee dissatisfaction, and replacing payroll experts when they leave the organisation. Hidden costs that organisations often forget or under-estimate.
All of the above takes time, money and expertise. Outsourcing reduces all of these actions into a single monthly cost, without the need for the salary of at least one FTE, the software costs and training, and retention resources. Instead, you free up resources for other projects, avoid additional overheads for software, etc, and increase departmental efficiency.
Outsourcing can be simpler and more cost-effective than managing payroll in-house. Speak to our team today to find out how.
Where to start when looking for payroll partners
Before starting the outsourcing process, consider what your objectives are for managing payroll. Have a clear idea of the type of organisation you would like to work with and the specific requirements your business will have in working with them. Think about what internal resources you currently have, and what responsibilities you want the third-party provider to assume specifically.
For your payroll process to run smoothly, you will need an experienced payroll organisation that invests heavily in expertise. Look for an organisation that communicates well and talks about partnerships with clients. Ask about their standard SLAs and how flexibly these can be adapted to suit your company’s requirements. Ask about the transition process and how it will be project-managed, and finally discuss crisis management processes and ongoing account management.
MSP Payroll provides all of the above, so why not start your search with us and book an intro call today?
A summary of the benefits of outsourcing payroll
If your HR and people teams are struggling with time for important projects, resources and skillsets for payroll processes or remaining compliant with HMRC regulations, then outsourcing your payroll could dramatically increase your efficiency and productivity.
Outsourcing your payroll management provides a simple way to ensure one of your most important organisational responsibilities is cost-effective and accurate, with reduced risks.
How can MSP Payroll support your business?
MSP Payroll provide expert Payroll Services, including a comprehensive approach to statutory payments for parents.
Our services cover:
- Ongoing payroll services such as director tax and NI calculations
- Service and support for specific payroll issues or challenges
- Correct deductions from statutory payments such as tax, NIC, pensions, etc.
- Ad hoc payroll on-demand, including daily administration
- Pension processing and payroll compliance
We provide seamless Payroll services for your organisation, increasing employee satisfaction while reducing the impact on internal resources and the cost of inaccuracies.
Speak to us today to find out more.
The benefits of outsourcing payroll: Frequently asked questions
Will I lose control of my payroll if I outsource it?
One of the concerns with outsourcing key internal processes is regarding a perceived lack of control once it is managed by a third party. Working with a payroll services specialist such as MSP Payroll means that outsourcing becomes a close partnership. This means when your team needs a quick reaction, we can provide it, while also taking a proactive approach to governance and compliance, to ensure you are always ahead of events.
How do I ensure my payroll provider keeps up with changing legislation?
Your payroll provider should have regular communication with your employees responsible internally for payroll. You should look for updates on changes from HMRC and best practice improvements on processes and payroll execution. If you don’t have this with a current provider, then speak to MSP Payroll. We are continually providing compliance and governance insight for our clients, as you can see from some of our other articles here.
How secure is my data when I outsource payroll?
Outsourced payroll providers operate within robust security frameworks, with encrypted data securely transferred and stored in line with GDPR and HMRC requirements. For the best employee experience, secure website access can be provided for payslips, P60S and pension information, without fear of accidentally revealing personal financial information. MSP Payroll can provide all of these services. Speak to us today.
Other Articles You May Be Interested In