Outsourcing is a tried-and-tested means of obtaining external expertise on a flexible, on-demand basis.
Some 67% of UK businesses outsourced in 2019, and 37% outsourced both accounting and IT services.
Let’s explore the benefits of outsourcing payroll and why to consider it.
The benefits of outsourcing payroll for your business
Payroll serves a critical function in any business that employs people.
It involves understanding tax legislation, ensuring compliance, managing employee benefits, and record-keeping for tax returns and filing.
While many business owners initially try to handle payroll themselves, it won’t be long before it becomes apparent that this isn’t sustainable.
Here are the benefits of outsourcing payroll.
1: Ensuring tax compliance
If you’ve ever found yourself knee-deep in spreadsheets, tax codes, and payslips, you know that managing payroll is no walk in the park.
As your business grows and you employ more people, the complexity of handling payroll increases.
Tax compliance is non-negotiable, and your employees need to be paid correctly and on time, which outsourced payroll services can deliver.
- HMRC submissions: Outsourced payroll services can handle monthly or quarterly submissions to HMRC, including PAYE and National Insurance contributions, ensuring you stay compliant.
- Auto-enrolment: If you’re required to provide a workplace pension, the payroll service will manage auto-enrolment processes, including the calculation of contributions and appropriate deductions from employee pay.
2: Cost-effectiveness
Outsourcing payroll can reduce the direct costs of processing payroll by eliminating the need for in-house staff to handle the job.
You immediately save on salaries, software, and staff training.
Moreover, outsourcing frees up time and resources to focus on core business operations, effectively increasing productivity.
This is especially true if you or other employees handle payroll jointly alongside your primary tasks and responsibilities.
- Overhead reduction: By outsourcing, you avoid the cost of maintaining hardware, software, and the additional workspace needed for an in-house team.
- Error costs: Mistakes in payroll can be expensive, not just in terms of penalties but also in workforce morale.
3: Expertise
Even if you’re a jack-of-all-trades, payroll is one area where specialised knowledge pays off.
An outsourced payroll service comes with a team of experts who keep abreast of tax laws, compliance regulations and best practices.
Professional payroll management ensures you pay employees correctly each and every time while reporting and paying the appropriate tax to HMRC.
- Compliance updates: Payroll firms constantly update their knowledge base, ensuring they’re aligned with the latest tax codes and regulations.
- End-of-year processes: Specialised firms manage the year-end tax documentation, including issuing P60s for employees, streamlining what can be a complex process.
4: Flexibility and scalability
Adaptability is key to long-term business success.
Your payroll needs today may not be the same as tomorrow. When you outsource, it’s easier to scale your payroll operations in line with your business growth.
Need to onboard 20 new employees after landing a big contract? No problem.
Downsizing? That’s also manageable without the headache of adjusting in-house payroll resources.
- Contractual adjustments: Should you win a new contract and rapidly need to expand your workforce, an outsourced service can easily adapt to the increased volume.
- Resource reallocation: If you decide to downsize, your outsourced payroll can adjust with ease, freeing up internal resources for other tasks.
5: Risk management
Payroll errors can lead to employee backlash or even fines from HMRC.
Outsourcing firms have the expertise to help you avoid such mistakes in the first place.
- Data security: Outsourced services often have stringent data security measures, including encryption and secure servers, to protect sensitive information.
- Liability assurance: If there’s an error, many outsourcing firms will take responsibility for penalties, thereby reducing your risk exposure.
6: Real-time analytics
In the era of real-time information (RTI), modern outsourcing firms often provide advanced reporting features with real-time insights into payroll expenses, employee trends, and other key performance indicators.
Such information can prove enormously useful for budgeting and forecasting.
- Expenditure analysis: Real-time reporting can break down labour costs by department, role, or individual employee.
- Overtime tracking: Analytics can identify trends in overtime or absence, aiding in resource planning and cost control.
7: Technological advantages
The world of payroll technology is constantly advancing, and keeping up with it can be both time-consuming and expensive.
An outsourced service will likely be equipped with the latest software and technology, ensuring your payroll is processed with the most up-to-date tools available.
- Software updates: An outsourced payroll service will typically have access to the latest software features, including automated compliance checks.
- Integration options: Many services offer integration with existing HR software, simplifying the flow of data between different business processes.
Outsourcing for efficiency
Outsourcing payroll eliminates inefficiencies and reallocates time and resources to where they have the greatest impact.
It’s about recognising the complex nature of payroll management and opting for a solution that simplifies this responsibility without sacrificing accuracy or compliance.
So, if you’re finding that payroll is becoming too complex, costly, or time-consuming, it might be time to consider outsourcing as a straightforward and effective solution. Get in touch to find out more.