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of UK businesses still prefer executing their payroll in-house, it also noted that 31% of respondents are still using outdated legacy tools and relying on paper-based or offline methods.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 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.
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.
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.
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.
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.
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 a payroll mistake, they simply report the mistake to HR, and the payroll team corrects it in a flash.
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.
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.
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.
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.
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.
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.