Your Ultimate Guide To Payroll Outsourcing
Payroll outsourcing: what does it mean, how does it work, and is it worth it ?
we cover absolutely everything you need to know about payroll outsourcing in this super-handy guide. from the pros and cons of outsourcing, to finding the perfect provider, it's all here Payroll outsourcing simply means to transfer, subcontract, or farm out your payroll processing to another company.
This company will, most likely, be a specialist payroll provider with a team of qualified payroll experts. After all, you don’t want to give the important task of paying your employees to people who aren’t experts in the field. Payroll outsourcing is for businesses that don’t fancy the daunting responsibility and hairy hassle of processing payroll in-house. ‘In-house’ payroll is where the payroll is processed by an internal employee inside the organisation.
To confuse things, payroll outsourcing is also given some other names:
Managed payroll is a term you may hear when looking up payroll outsourcing. A managed payroll provider will manage your payroll for you.
Payroll bureau is also something you might hear. This is a name occasionally used for the payroll provider to whom you outsource.
Do companies outsource their payroll?
Yes, yes, they do. In fact, according to online sources, 61% of UK businesses outsource their payroll provision to an external payroll company*. Why is that? We’ll get to that in chapter two.
How does payroll outsourcing actually work?
Payroll outsourcing done right, results in smooth internal running, satisfied staff and a positive culture.
Let’s see the process in more detail.
1. Some data input needs to happen at your end
OK, so first up, someone inside your company will need to have some involvement with your payroll. They don’t need to be a payroll expert, but they do need a keen eye for detail because they’ll be responsible for the data entry at your end. All of this is straightforward data entry. Of course, you need to entrust it to someone in your company who is comfortable with it. You don’t want them accidentally entering extra zeros here and there when updating salary records! But it’s nothing overly complicated and it certainly doesn’t require an in-house payroll expert.
A quick note on data input...
OK, so the next obvious question is: how do you get that data (listed above) across to the payroll provider? Presumably, in the olden days, it was done using paper and the postal service—what a GDPR nightmare! These days, some providers may accept spreadsheets, great big lists and tables of data that need to be uploaded at their end. Of course, that service will cost you more because it’s more work for them. But whether you do it or they do it, your data must be entered into your provider’s payroll software. Payroll software is the tool used to organise and manipulate the payroll information you provide. So, unless you’re set on using excel (which we wouldn’t recommend), providers will supply you with their payroll software. All you’ve got to do is enter your payroll information directly into it.
2. Everything else happens at the payroll provider’s end
Once you’ve input all your payroll data, your payroll provider will take care of everything else! I.e., running the payroll and paying your people.
With payroll outsourcing, you can leave all the heavy lifting to the provider’s payroll experts. They are responsible for things like:
- Making sure payroll processes and pay comply with the latest legislation
- Calculation of payments, including statutory payments like sick pay and maternity pay
- Processing your payroll form start to finish and according to your specified timetable
- Payments of wages and salary payments via BACs or Faster Payments (depending on what you choose)
- Creating and sharing employee payslips, P45s and P11Ds
- Producing, reconciling and submitting documents required by HMRC
- All Year End processing including employee P60s
