Improving In-house Payroll: How Software Is Changing Everything

Team Pento
8 min

Running payroll usually involves selecting one of the two trajectories: outsourcing to an external payroll service provider, or handling it yourself in-house. While many companies are switching over to outsourced payroll options, others simply cannot rely on someone else taking care of this vital function. The nature of your business may mean that only you understand the complexities and nuances of your payroll requirements, or you just don't trust anyone other than your in-house team to handle payroll. Whatever the case, in-house payroll options are a tried-and-tested formula that has served as a mainstay payroll solution for decades.

A Reward Strategy survey found that while just over a third of UK businesses still prefer executing their payroll in-house, it also noted that 31% of respondents are still using outdated legacy tools and relying on paper-based or offline methods.

This gives rise to a situation where companies are jumping the in-house ship to outsourced solutions instead of looking at ways to enhance and streamline their existing payroll processes without considering the effects of this migration on their operations.

In this piece, we dive into the differences between outsourcing payroll and managing it in-house and discuss how modern software is bridging the gap between in-house constraints and outsourcing challenges.

In-house payroll & why it works

In-house payroll can be a challenging task that tests the patience of even the steadiest hand. But the fact remains that an in-house payroll solution is the quickest and most reliable option for most businesses. From dealing with issues on the spot to using accumulated experience, in-house payroll systems mean better control and fewer payroll chefs spoiling the finance broth.

In a world where outsourcing is on the rise, companies are often tempted to abandon their tried-and-tested in-house techniques in favour of handing over the payroll reins to outsourced services. But outsourcing your payroll can present many pitfalls that some businesses aren't prepared for. From giving up control to long lead times and limited flexibility, for many organizations, in-house payroll is still the best option for them.

In-house vs outsourcing: Choosing a payroll solution that works for you

While 61% of UK businesses are outsourcing their payroll needs, the remaining companies who choose to keep their payroll in-house are seeing substantial savings in both time and money. In the post-COVID world, payroll outsourcing growth is levelling off, as modern software and technologies are becoming an attractive alternative to costly third-party solutions and outdated in-house methods.

While we're not going to explore the ins and outs of outsourcing in this article, you can check out our in-depth payroll outsourcing analysis or keep on reading to know why modern in-house payroll solutions are being driven by a burgeoning software revolution.

Both in-house and outsourced payroll solutions come with a raft of pros and cons, each impacting a business differently. So, before deciding whether you prefer one solution over the other, make sure to consider the implications of how each route will affect your ability to manage payroll accurately and quickly. 

The benefits of running payroll in-house

Increased flexibility

Handling your payroll in-house means that you can deal with problems and issues that a third-party provider cannot. Often, a seasoned HR staffer will spot a mistake that external personnel might miss. Retaining this flexibility is critical where time is limited – as in the case of this Pleo case study – allowing errors to be corrected on the spot instead of relying on other people to do it.

Simpler communication

One of the biggest gripes that come with outsourcing payroll is the convoluted communication that usually exists between your HR department and the third-party provider. Most suppliers have a fixed process that companies must subscribe to when communicating and correcting errors. These communications procedures are typically designed around handling big issues that require extensive collaboration between parties. In reality, however, the overwhelming majority of payroll problems need minor fixes. A quick message between an in-house team means a quick fix, with no unnecessary back-and-forth.

Source: Unsplash

Maintaining control 

In payroll, the more control you have, the less likely things are to spin out of, well, control! When turning over your payroll functions to external parties, you give up a big chunk of the power to determine how your payroll is administered. Losing control of your payroll can lead to serious challenges that don't exist under in-house payroll solutions.

Saving time

In-house payroll solutions come with the ability to correct errors faster since there is no need to wait for the external contractor to do it. When an employee picks up an error, they simply report the mistake to HR, and the payroll team corrects it in a flash.

Learning and upskilling

Many businesses spend vast amounts of money, time, and effort on skills development and learning programs. Besides the invaluable experience gained by managing payroll in-house, as employees develop their own methods that compliment your business' unique payroll needs, so, too, does their competency to solve other finance-related problems. Skills developed in-house improve relationships and interactions in the workplace. Employees are also much more likely to prefer working with a team of professional peers than with a faceless contractor they've never met.

The benefits of outsourcing payroll

Outsourcing complex requirements

Close to 40% of payroll teams cite compliance issues as their biggest payroll challenge. Tax and filing laws in the UK are typically complex and often near-impossible to fully understand. Outsourcing your payroll allows you to pass on the tax issues, pension, and PAYE responsibilities to a dedicated provider who manages everything and ensures compliance on your behalf. This allows your finance teams significantly more time to focus on other tasks and responsibilities. 

External expertise

Outsourcing your payroll to professionals whose only job is payroll means that you can count on their specialized expertise to take care of everything without you having to worry. With the added benefit of expert feedback and advice, you can expect to see fewer arbitrary errors and a smoother overall payroll experience.

Source: Unsplash

The verdict? Whether you rely on a third-party payroll provider to get the job done every month, or you prefer keeping an eye on things with your own purpose-built solution, payroll can always be improved upon. While outsourced options may seem attractive on the face of things, getting an external supplier up to speed can be tough. Especially, if you're moving to an outsourced option after years of running things in-house. 

From long turnarounds to communication nightmares, outsourcing can be risky and – at times – expensive. Many companies have turned to outsourcing, only to end up returning to an in-house option in the long run. 

So, how does a company that prefers to keep things in-house deal with the problems this methodology brings? The answer lies in implementing a modern software system that minimizes the problems of using outdated paper-based techniques. Essentially, running your payroll with the help of an in-house, cloud-based software system like Pento.

Improving your in-house payroll with modern software

Payroll software systems have come a very long way since Xero made complex payroll infrastructures possible. But any payroll expert (in your team or an external agent) will tell you that endless spreadsheets and error-prone tasks are what lead to so many issues and errors. 

Tools like Pento's end-to-end, cloud-based software payroll solution offer companies a raft of benefits, allowing you to handle payroll as efficiently as if you were to outsource it to the very best payroll provider.


Here are a few of the advantages Pento users enjoy, giving them a payroll edge like no other.

  • Reducing errors – With software running things automatically, incidents of human error drop immediately. This means fewer expensive slip-ups and valuable time saved.
  • Compliance – Software payroll tools are rigorously tested to ensure that they are compliance–ready as soon as you get them. From HMRC to pension providers and accounting systems, compliance is the number one cited concern among payroll teams.
  • Reduced workload – Automated payroll solutions can save up to 80% of the time and half of the money previously spent on payroll. No more soul-destroying repetitive in-house tasks or lengthy exchanges with outside payroll personnel.
  • Better flexibility – Automated payroll software doesn’t keep office hours, and is available 24/7. It acts as a dedicated tool that slashes lead times and sticks to deadlines defined by seconds instead of days. 
  • Scalability – As your business grows, so too do your payroll needs. Modern software has been designed with this in mind, solving the problems presented by the previous constraints of the last generation of payroll tools.
  • Designed for Today’s Needs – 21st-century payroll requires 21st-century technology, and outdated legacy tools simply won't cut it anymore. With tools built specifically to service modern payroll needs, you won't be taking on all the unnecessary bells and whistles that earlier legacy tools were stuffed with. Pento, for one, is a payroll system built for payroll and nothing else. 
  • Integrates with your toolstack – Pento integrates with a variety of HR and accounting tools (including BambooHR, Hibob and Xero) which further contributes to the optimization of your payroll process. 

Summary

Modern software solutions are changing how we manage payroll. Automation means fewer mundane, repetitive tasks where errors are bound to pop up, saving you time and money. Smooth integrability means you won't need to reinvent the wheel to implement a working SaaS solution. Finally, the deadeye accuracy that comes with modern tools means that compliance is taken care of – no more sleepless nights and HMRC worries!

Automated in-house payroll systems are built precisely for the purpose of taking the burden of efficiency and accuracy off the shoulders of in-house payroll teams. It puts smart programming to work in handling things on your behalf. So, if you're tired of staring at the same archaic spreadsheet and aren't prepared to hand over the reins to someone outside of your trust circle, turn to an in-house solution that is proven to work. Turn to a modern, cloud-based, automated payroll software solution like Pento.