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Outsourced Payroll VS In-house Payroll


It’s not overstating things to say that payroll sits at the heart of your business. The ability to pay your people accurately and on time month after month is a demonstration of your commitment to looking after their wellbeing and rewarding them appropriately for their hard work, and payroll teams have been considered the secret key workers for businesses, especially over the last couple of years.

Payroll as a function can be a minefield, with numerous legal and legislative concerns which have to be navigated carefully in order to avoid serious repercussions. Many organisations rely heavily on the knowledge and expertise of their payroll teams in order to stay on top of any changes which may impact their pay cycle in such a way.

We understand that an effective, compliant payroll system can go a long way towards alleviating these concerns and ensuring an efficient and accurate payroll process for your organisation, month after month. We also appreciate that the search for a payroll system can be a little overwhelming at first- with solutions varying in complexity and offering in house or outsourced service, finding the right system to meet your business needs may seem daunting.

In this article, we will explore the options available to businesses when searching for a way of processing payroll. We will explore the pros and cons of outsourced or in-house solutions in order to arm you with the information you need to find a system that best suits the needs of your business.

What is Payroll Outsourcing?

Simply put, Payroll Outsourcing is the use of an external provider in order to handle the administrative and compliance elements of payroll. The level of complexity offered by outsourced solutions can vary from handling only certain elements of an organisation’s payroll such as calculating deductions or transferring pay to employee’s accounts, to taking charge of the entire process and removing worry completely.

What are the benefits of Outsourcing Payroll?

At the best of times, payroll can be a time consuming and complicated process. To top it off, there is a minefield of legislation and legal requirements which organisations need to navigate in order to ensure that they remain compliant when it comes to paying their people. For these reasons, many organisations prefer to pass the responsibility of running payroll to an external provider. Some of the benefits offered from outsourcing can include:

1. Legal Compliance Payroll outsourcing providers are experts in the field and their knowledge of the industry and the legal requirements of a compliant payroll can be an asset to new startups or organisations lacking veteran payroll experience. Avoid costly penalties and fines from compliance pitfalls by letting an expert in the field take the strain.

2. Benefit from the latest technology – Most service providers will make a point of keeping up to date with the latest technological developments in the industry, meaning that you can take advantage of the efficiency and speed of new systems and processes without the need to source new systems in house.

3. Improved security – Payroll is understandably an area where data security will be at the forefront of everybody’s mind. Many organisations who are lacking confidence in their own security will find outsourcing a welcome boon. Many outsourced providers secure data safely on Cloud based servers, often backed up by market leading security encryption, giving you the peace of mind to know that your people’s data is being stored safely and securely.

4. Save on time and money – It’s no secret that payroll is an expensive process both in terms of financial cost and man hours lost. Inefficient processes can run up massive costs and understandably organisations are keen to avoid this. Outsourcing can give you the peace of mind to know that your payroll Is being run efficiently and effectively month after month.

What are the benefits of in-house payroll?

Whilst outsourcing payroll can be an asset to many organisations looking to ensure an efficient and accurate pay process, many businesses still prefer to handle their payroll in-house. There is no wrong answer when it comes down to in-house or outsourced, only what is right for your business. With that in mind, what are some reasons that people choose to keep payroll in house?

1. Greater control – Outsourcing payroll does mean relinquishing a certain element of control to an external organisation. As effective and efficient as outsourced providers are, many businesses may be uncomfortable with not having complete control over the process. This largely comes down to a security and data sensitivity standpoint, with many organisations wanting to control who has visibility of sensitive information on matters such as employee salaries etc.

2. Lower cost – Even the most comprehensive payroll systems offer a more attractive price point when compared to outsourcing. Businesses who feel like they have a suitable level of knowledge/experience in their payroll teams will find that supporting their people with effective and efficient payroll systems may be a more effective long term investment.

3. More accurate – Outsourced payroll relies heavily on accurate data being supplied by the client organisation in order to ensure a smooth and accurate payroll process. Intuitive knowledge of a company’s internal structure and working process can often ensure a greater degree of accuracy when collating data. Any errors in reporting can lead to knock on effects and for that reason, many organisations prefer to keep payroll in house in order to ensure a level of accuracy.

4. Flexibility – Outsourced providers can very often have a huge client portfolio which means naturally, that their time is divided between each one every month, allotting maybe enough time to run the admin tasks for each. This can leave little room for error and if errors occur-as they sometimes do- organisations who rely on outsourced providers may find a lack of agility and flexibility in being able to meet and fix problems before payroll is run.

What to look for in an outsourced supplier

The requirements for an outsourced solution will differ for each organisation, varying in the complexity required based on a number of factors such as employee numbers, locations and pay rates. When sourcing a provider it is important to be conscious of the issues hindering your payroll process and which providers will be most suited to help you meet these challenges.

Some of the most crucial elements to look for in an external provider include:

1. Record keeping and payments – Keeping on top of the admin burden of recording commission, sick pay, travel subsidiaries and any other financial inducements.

2. Compliance – Make sure any provider is fully compliant with HMRC and the Pensions Regulator in order to avoid any legal headaches for your business.

3. Are they payroll specialists – This may seem strange but some organisations are more specialised in the account management aspect of finance as opposed to being specifically specialised at running payroll. Consider what you are looking for in a provider, if it’s more than a simple admin issue, look for a provider with specialisation in the field of payroll.

4. How much input will be required from your admin team – the success of any outsourcing will largely depend on your ability to correctly identify which aspects of your payroll you are looking to improve. Furthermore, one of the main reasons organisations look to outsource is in order to unburden their payroll teams, therefore any outsourced solution which still requires a huge amount of admin from your pay people, may not be worth your time.

5. What are you getting for your money – As with any competitive market, it’s always vitally important to assess any potential external providers and properly assess what level of service you are receiving in exchange for your money. You can assume that every provider can offer a base level of payroll service but when looking at outsourcing, ask questions of their service: do they provide any other services to your employees, are they GDPR compliant? How well equipped are they from a customer support standpoint?

6. Will it give you peace of mind – Ultimately, the reason anyone outsources a service is to take a burden off their hands. When looking at a potential provider, you have to ultimately weigh everything against whether outsourcing is going to make the lives of you and your finance teams easier. The right provider will look different for each organisation and fundamentally, what will work best for you is choosing a provider to specifically tackle head on, the challenges facing your pay people, whether that be admin burdens or issues of compliance.

What to look for in an in-house solution

We appreciate how important it is that when sourcing a new solution that you find a system that works for you and your organisation from day one. The consequences of a delayed or inaccurate payroll are too great to accept anything other than a solution that gets it right immediately.

We also believe that the process of going to market doesn’t have to be as scary as it seems and that when looking for a solution, commonly people tend to get distracted by various bells and whistles and level of complexity which whilst may seem impressive, ultimately won’t help you achieve your goals of future proofing your payroll.

With that in mind, we thought it would be a good idea to pull together a short list of some of the key requirements you should look for in any potential system:

1. Automation – Perhaps the most crucial element of all. Any solution which is unable to significantly reduce the amount of manual input being handled by your payroll team, isn’t worth much at all. The most effective payroll solutions should be able to easily bear the strain of even the most complex pay calculations, providing gross to net figures in the blink of an eye. Automation gives you the peace of mind to know that the information being fed through is accurate, right up to the moment that you run your payroll.

2. Report Building – Businesses across all industries run on metrics. The ability to collate data into an easy to reconcile report is vitally important for any organisation which is looking to keep a keen eye on their finances. Any potential payroll solutions should allow you the ability to pull reports effortlessly, meaning you’re never kept in the dark about the state of your outgoing costs.

3. Employee Self Service – This is a little less obvious on paper but the growing trend for technology across all aspects of our lives, is for people to have the information we need at our fingertips. From banking to booking holidays, plenty of aspects of our lives have become digitised and streamlined and the expectation is for this same kind of transformation to extend into the working world.
Employees should have ready access to information pertaining to their pay, be it payslips, holiday allowances or records of commission or other financial rewards schemes. Pay teams across all industries lose hours every working week fielding requests from employees for visibility over things as simple as payslips. When sourcing a new solution, why not find something that can put the power in your employee’s hands?

4. Compliance – Matters of compliance, particularly in relation to tax, is a primary concern for all payroll departments. Any payroll solution worth its salt should do the homework for you, keeping on top relevant legislative changes so you don’t have to. Instant calculations can help ensure the information you are feeding through to HMRC is accurate and that any PAYE or National Insurance contributions are present and correct.

5. Can easily integrate with your other systems – When sourcing a payroll solution it’s sometimes all too easy to consider the problem in a vacuum. As complex and comprehensive as a potential system may be, if it can’t easily integrate with your existing systems and processes then you run the risk of creating more problems than you actually solve. Payroll is a delicate process and one which often requires working closely with HR and time and attendance functions. When looking at potential systems, make sure that from day one, they work seamlessly with your existing processes.

6. Scalability – This is a big one. Change for change’s sake is very rarely profitable and given the potential pitfalls of getting your payroll wrong, many businesses want to see the long term value of going to market to make such a fundamental shift to their process. The main purpose of sourcing a new payroll system is not only to offer the baseline accuracy and functionality that you require from day one, but to also future-proof your organisation. When looking at potential suppliers, ask hard questions about the scalability of their solution and how it will be supported going forward.


We understand how vital your payroll is to the ongoing success of your business and just how important it is that you have the ability to run your pay cycle accurately and efficiently, every single time. We also appreciate how daunting it is to take that leap and make the change, which is why we’re committed to dispelling some of the mystery around payroll and ensuring you find a solution which suits your way of working.

Understanding the pitfalls that come with searching for a new payroll solution was one of the guiding inspirations behind developing our Flexipay Solution.

Flexipay offers you the scalability and flexibility you need to completely transform the way in which you run payroll, capable of working effortlessly across multiple sites and pay grades. Flexipay offers you the super-fast processing you need to run payroll swiftly and accurately each and every time. Whether operating as a standalone system or integrated with our Time and Attendance, HR and Access Control solutions to form a comprehensive Workforce Management suite, Flexipay helps you process payrolls efficiently.

If you’d like to discover more about how Flexipay can help transform the way you run your payroll, our friendly and helpful team of experts are always on hand to help. Get in touch today to find out more.

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Mitrefinch needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at any time. For information on how to unsubscribe, as well as our privacy practices and commitment to protecting your privacy, please review our Privacy Policy.

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