Payroll outsourcing, for both large and small businesses, can save precious resource, time and money, as well as reduce the risk of breaching payroll legislation which could lead to a severe fine. For those reasons alone, outsourcing your company’s payroll duties may have crossed your mind more than once.
In a YouGov study completed in 2019, it was found that nearly a third of British companies outsource their payroll. More recently, however, it has been suggested that the number is actually closer to two thirds, around 61% of all British companies.
So, why has payroll outsourcing become so popular and should your business follow suit? In this guide, we’ll answer the following questions in detail:
- What is payroll outsourcing?
- What can an outsourced payroll provider help with?
- What are the benefits of outsourcing your payroll needs?
- What should you consider when looking for an outsourcing partner?
- How can you choose a provider that’s right for you and your business?
What is payroll outsourcing?
Payroll outsourcing is the act of entrusting the management and compliance of your company’s payroll processing to a specialist payroll provider. The third-party payroll provider can help with some or all of your company’s payroll responsibilities, taking the pressure off your in-house employee or team.
This can often be beneficial for both smaller and larger companies, as, to keep up with ever-changing national and international regulations, any in-house team would need to be experts in their field.
What can an outsourced payroll provider help with?
While a trusted employee from your company will still need to be involved with the data input, such as holiday taken, hours worked and new starter information, the payroll provider will be able to take responsibility for:
- Providing a GDPR-compliant payroll software for inputting data
- Making sure compliance is met and any processes updated to meet legislation
- Meeting strict deadlines with payroll processing
- Calculating employee pay, with the addition of benefits and any reimbursements
- Producing and sending employee payslips, P45s and similar forms
- Making payments to employees
- Keeping payroll records up to date
- Filing taxes and submitting relevant documents to HMRC
- Year End processing
Ultimately, a good payroll provider will take care of your payroll with a focus on data security and GDPR compliance. The only responsibility left with your company will be accurate data input and ensuring that GDPR compliance is upheld by both the company and payroll provider.
Benefits of payroll outsourcing
1. Meet fast-changing legislation
Payroll legislation is constantly changing and evolving, with regular updates consisting of a complex set of rules which may differ for the size, type or sector a company exists in. Payroll professionals must be aware of these changes and any important deadlines without fail.
For example, upcoming changes to National Insurance and talks of a mandate to report on ethnicity pay gap will need to be closely monitored to ensure the company meets compliance – otherwise the business could face a severe fine and damage to reputation
With a specialist payroll provider, the team will consist of payroll experts who have a clear understanding of past, current and future changes to legislation. A good provider should also use payroll software which has been designed to seamlessly handle legislation changes, such as Mitrefinch’s Flexipay, giving you complete peace of mind.
2. Reduces outgoing costs
While you will need to budget for your payroll provider, outsourcing payroll can lead to a number of savings across the business. These include:
- Staff costs – with outsourced payroll, you will not need to employ an in-house employee or team to manage your company’s payroll processing
- Training costs – you will not need to spend money on specialist payroll training, which would likely be ongoing to keep your staff’s skills up to date
- Software costs – you will save money on payroll software, as you will be able to use the software choice of your provide
3. Frees up time for employees to focus on other aspects of the business
Except for the necessary data input required, your HR team will have additional time to focus on other value-generating aspects of the business.
This can include improving internal processes, increasing employee engagement and generally working to improve well being across departments. No matter the priorities of your company, staff can become more involved and make a real difference.
4. Reduces the risk of GDPR breaches and costly penalties
When it comes to GDPR and payroll, your business must meet compliance or become subject to severe reputational damage and a substantial fine. These stringent rules and regulations can be complex and easy to breach if payroll is not handled by an expert – especially since GDPR only came into effect in 2018.
Fortunately, when handing over your payroll processing to a specialist provider, one of their key areas of expertise should be adhering to GDPR. Additionally, a provider will usually use a GDPR compliant payroll software, such as Mitrefinch’s Flexipay, which has GDPR compliance in its core design.
Things to consider when outsourcing payroll
1. You already have the expertise in-house
If you have a team of staff with expertise in payroll, or you’re willing to offer appropriate training, managing payroll in-house could still be the best option for you.
This will give you complete control over your data and payroll processing from start to finish, which is desirable for many businesses. You’ll be able to address urgent payroll issues straight away and have direct contact with the employees, rather than having to contact your third-party provider.
2. Cloud-based payroll software will automatically apply legislation changes
Some Cloud-based payroll software, including Mitrefinch’s Flexipay, will automatically update to meet new or updated legislation.
With the additional support of Cloud-based software, an in-house option may seem more appealing to your business. This takes the pressure off your HR team or payroll professionals to update complex systems and panic about missing important deadlines.
3. Payroll providers and GDPR compliance
While payroll providers should be experts, there is risk involved when handing over sensitive employee data to a third-party provider. Any data breach could result in severe relational damage between you and your employees, not to mention the reputational and financial damage.
Ultimately, it is still your responsibility to ensure that all payroll activity is GDPR compliant to uphold high standards of data security. That’s why, if you do choose to outsource our payroll, you will need to choose your provider very carefully.
Otherwise, keeping your payroll in-house with GDPR compliant software could be the safest option for your data.
How to choose a provider
If you do decide to outsource your payroll, take your time when choosing a provider. Payrolling errors can negatively impact employees’ wellbeing and their relationship to the company.
So that data security is at the forefront of your decision, make sure to ask the following questions, plus any questions which are relevant for your business:
- What responsibilities do you cover?
- How do you ensure GDPR compliance and data security?
- Does your software automatically update with new legislation changes?
- What are the costs of completing payroll per employee?
If you’re not satisfied with the answers, it may be best to keep your payroll processing in-house – the final decision will be different for each company as there is no blanket answer when it comes to outsourced payroll services.
Speak to the experts
You can, however, speak to the experts for advice. Mitrefinch’s HMRC RTI recognised payroll software is used by over 3,500 UK businesses. Since 1986, we’ve also been the proud technology partner of UK payroll outsourcing experts, Dataplan.
If you’d like to know more about how Mitrefinch can help your business, get in touch with our team online or call us today on 0330 726 0066.