Payroll In The UK – To Outsource Or Not To Outsource?

Payroll is among the top five business processes which are entirely outsourced by British companies. In fact, nearly half (48%) of UK businesses admit that they don’t have a dedicated accountant on board. However, while outsourcing certainly relieves the team from in-house salary and tax deductions, many companies become fully dependent on these partnerships. 

This brings a question to mind – how effective is payroll outsourcing in the UK today? With the rise of cloud-based software solutions, is it still the best way to handle payroll? 

In this article, we explore the role of payroll outsourcing services, the pros and cons of outsourcing, and how software can help businesses overcome the inherent shortfalls of modern payroll outsourcing in the UK.

Payroll outsourcing in the UK: A brief overview

Outsourcing payroll in the UK follows a pretty standard formula that meets the accountability requirements and operational needs of public institutions and private employees alike.

1. Spreadsheets are created and populated with payroll data
2. Sheets are emailed to an accountant or tax advisor
3. All tax, pension, and net pay calculations are completed
4. The accountant generates PDF payslips for the employees
5. Payslips are sent to the company reflecting separate amounts
6. Employees are paid manually, either individually or in batches
7. Payslips are then distributed physically or via email
8. All payroll data is recorded by the bookkeeper or accountant.

While the payroll outsourcing procedure may appear straightforward to most, many variables can compromise the process at any point. Human error and time pressures are common factors that can lead to incorrect tax contributions, delays, and growth constraints. When faced with these challenges, companies can search for alternative options.

The good & the bad of payroll outsourcing services: Benefits & drawbacks

The decision to outsource payroll depends on the needs of the business. While some UK businesses are capable of taking care of their own payroll, limited experience and outdated systems can make things difficult.

Conversely, other companies who may wish to outsource their payroll needs may lack the means to do so. As such, it is critical to consider the pros and the cons of outsourcing payroll when choosing a payroll administration method.

The Benefits of Outsourcing Payroll

• Outsourcing saves time – By removing arduous tasks like tax calculations, remittances and compliance checks, employees can use this extra time to focus on pursuing the growth goals and objectives of the company.
• It saves on training – With payroll taken care of by the experts, finance and HR departments no longer need to hire payroll specialists to their teams or undertake time-consuming and expensive training and skills development. 
• Improved tax compliance – According to a 2020 Paychex poll, over a quarter of payroll users are seriously concerned about tax compliance. Outsourcing to a better-equipped UK payroll service means more accurate tax calculations and on-time payments.
• Access to expertise and knowledge – UK payroll outsourcing services dedicate all of their time to payroll activities and nothing else. They are staffed by seasoned experts who know what they are doing. Outsourcing your payroll lets you tap into this wealth of knowledge.   

Drawbacks that come with outsourcing payroll

• The wrong payroll partner – Teething problems are bound to arise at the beginning of any relationship. An outside payroll service unfamiliar with the ins and outs of a company may take time to learn about the organisation’s unique aspects, leading to initial delays and errors. This can lead to costly issues if not addressed early on.
• Additional fees – When agreeing to outsource their payroll, a company may end up unwittingly purchasing additional services from their payroll outsourcing service that they end up using very rarely or not at all. These unnecessary extra payroll expenses often bear no value for the business.

Source: Unsplash 

• Complex process – As soon as payroll procedures move outside the company, ownership and responsibility are outsourced along with them. This can further complicate a process already prone to mistakes. Additional communication and extended payslip error correction lead times mean administration headaches and more costs. 
• You’re still accountable – If your payroll partner makes a mistake, you’re still liable for the consequences of that error. While third-party payroll outsourcing services in the UK are still responsible for their mistakes, your company will still have to live with them.  

Payroll software: Why is it so popular?

Outsourcing payroll services takes the weight of time-consuming payroll tasks off of human resources, and improves efficiency and compliance. But human error is still a big factor. Choosing the right payroll outsourcing service in the UK can be challenging, not to mention additional fees and complex processes canceling out any initial cost-savings. 

Payroll software automates the process, eliminating many of the problems caused by people. This allows companies to outsource their payroll tasks while keeping the activities in-house and thus, costs, manageable. 

Source: Pento

Systems such as Pento's cloud-based payroll software have assisted hundreds ofUK businesses to save time. In one case, our client saved 80% on the time previously spent on their overall payroll activities, which contributed to a stunning 50% cost saving in their payroll administration expenses.

Automation means fewer mistakes, too. By eliminating many tricky manual calculations, payroll software ensures that common errors are avoided and payslips correctly generated and issued. Payroll software in the UK is designed to integrate with gov.uk systems like HMRC and NEST. Meanwhile, full ownership of the software eliminates costly delays caused by the convoluted communications channels required by outsourcing. 

Payroll software is also built to be scalable and to grow with your business. In the event that a company outpaces the capacity of their payroll outsourcing service, a scalable payroll software solution takes the need to renegotiate, or face an ugly divorce out of the equation.

Outsourcing vs in-house payroll: Choosing the right option for you

While some UK organisations do possess the resources to manually administer their payroll in-house, many others lack the experience and capacity required to do so. And while some companies may be willing to choose to outsource their payroll needs, others simply cannot risk it.

This leaves many businesses stuck between outsourcing their payroll and taking care of it in-house. When faced with this puzzle, automated cloud-based software solutions like Pento’s can go a long way in answering many of the questions posed by both outsourcing and keeping payroll in-house.

Source: Unsplash

Do you want to have full control over your payroll?

Retaining the ability to correct payslip and tax errors quickly and efficiently without being overwhelmed or blocked by partner issues is critical in maintaining an effective payroll system. 

Pento allows HR to add or edit employee profiles in a few clicks. It also integrates with HR tools, including BambooHR and Hibob which enables automatic data synchronization. 

How tight are your time constraints? 

Time is precious, and hours wasted on correcting avoidable in-house errors can cost a company dearly.

Pento’s real-time payroll calculations and instant information availability mean that tasks that used to take hours are handled in minutes instead.

What are your growth plans? 

If you’re planning to hire new people and grow your teams, you’ll need to ensure that your payroll outsourcing service is capable of growing with you.

Pento’s software options are entirely scalable and not limited to outdated legacy system constraints that cap the number of employees they can handle.

Do you have compliance and security concerns?

Keeping employee data and payroll information is crucial in a cyber-threatened world. Changing policies and regulations can also mean that keeping up with tax requirements is becoming more of a challenge.

Pento takes care of security risks by initiating the payroll process, protecting cloud data, and ensuring that all HMRC and pension contributions are executed correctly.

Summary

Picking the payroll system that fits your business isn't easy. The key variables that govern your payroll needs are constantly changing and shifting, trying to keep up with your business's evolving requirements.  

Companies looking to hand off the payroll burden while meeting their tax requirements should lean towards outsourcing the job to UK payroll outsourcing services. This approach, however, carries the risk of overcomplicating an already complex process, slowing turnarounds and giving up full control over payroll processes.

Payroll software solutions like Pento’s end-to-end cloud-based systems are quickly gaining ground over payroll outsourcing in the UK and outdated in-house legacy tools. Technology meets in-house convenience and saves time with an infrastructure that keeps things simple, compliant, accessible, and – most importantly – accurate.

So, are you ready to transform your payroll, save time, money, and stress, without overburdening your finance team or putting your trust in an outsourcing service that is also prone to error? Take a look at Pento – we may just have the perfect solution for you.

As they say: “If you want something done right, let the software do it for you”.