Should I outsource payroll?

In the annals of business, outsourcing payroll has always been considered a logical move. Navigating through the labyrinths of look-up tables, issuing cheques, and drafting payslips were all monotonous and painstaking tasks, prone to inaccuracies that could impact the financial stability of the organisation or its employees. Initially, payroll software emerged as a lifesaver, albeit reserved for larger corporate entities, capable of justifying the financial investment to maintain an in-house payroll function.

However, the technology landscape has undergone significant shifts, not only do we have cloud based applications, but they can be powered with artificial intelligence. As businesses grapple with the complexities of evolving payroll systems and new regulatory demands like auto-enrolment, it’s worth evaluating the relevance of payroll outsourcing for businesses today.

Consider a standard payroll process today. Information gathering is essential for each payroll run. For those running monthly salaries, data on new hires, terminations, salary increments, and adjustments due to various factors such as unpaid leave, maternity/paternity leave, student loans, or pension changes, need to be gathered and handed over to the outsourced payroll service provider. This provider then inputs this data into payroll software to generate tax calculations and payslips. Suddenly, what was supposed to be a streamlined operation begins to feel a bit cumbersome, even more so for businesses operating weekly payroll cycles based on hours worked.

So, let’s dissect the time-honoured reasons for outsourcing payroll:

Optimising Time for Core Business Activities

Outsourcing payroll was once lauded for its time-saving capabilities. However, in the present context, such advantages seem to have evaporated. The task of collating data and forwarding it to your payroll provider, who then manually inputs it into a software solution and issues payslips before returning it to you for actual payments, hardly seems efficient.

Mitigating Need for In-house Expertise and Training

Present-day software solutions have significantly diminished the necessity for specialist knowledge. In the rare instance where you might need detailed guidance, your solution provider is more than equipped to assist.

Reducing Expenditure on Payroll Software

Stand-alone payroll software, though still available, caters to specialist applications today. Modern solutions integrate core functionalities like benefits management, time-off tracking, and expense management into one platform.

Minimising Errors, Omissions, or Late Filings

Introducing an unnecessary intermediary through outsourcing can, ironically, increase the chance of errors. Consider a scenario where an employee wishes to alter their bank details or change their pension contribution. Does it truly make sense for them to relay this information via email, which is then forwarded to alter something that they could provide the information for directly?

Ensuring Compliance with Tax Obligations and PAYE Responsibilities

Modern platforms grant you immediate visibility into your compliance state. Submissions to HMRC are completed automatically by the solution, which will also typically prompt you to ensure you stay compliant with auto-enrolment and other responsibilities.

In summary, while outsourcing payroll was once a rational business strategy, it’s clear that we’re witnessing a sea change. With the technology at our disposal today, businesses can save time, reduce errors, and drastically enhance the employee experience. After all, payroll inaccuracies are a leading cause of employee dissatisfaction. So, for forward-thinking start-ups, it’s worth questioning the dated wisdom of payroll outsourcing.