Payroll management is a labour intensive process requiring expertise in constantly changing laws, regulations, and reporting methods. With Real Time Information obligations now imposed on UK businesses, reporting to the HMRC is more complex than ever, and most business owners cannot do it alone. Ever changing regulations, software, and methods mean that the person managing your payroll must be an expert, or payroll errors are almost inevitable. Because even small errors can be costly in terms of penalties and payroll fraud investigations, ensuring that an expert is available to handle your payroll is essential. For small and medium size businesses without the budget for bringing an in-house accountant on to handle payroll, outsourcing is the ideal solution.
What is Payroll Outsourcing?
Payroll outsourcing is the process of hiring an out of company person, business, or other entity to handle your payroll for you. This allows you to get the benefits of a professional accountant or bookkeeper, without hiring one full time, so you can cut in-house costs, while improving the quality of services.
Is Outsourcing Payroll Cost Effective?
Outsourcing to a payroll company might seem expensive, and when you consider it on a per-hour charge, it usually does cost more to outsource. However, if you hire someone to do your payroll in-house, you will likely end up paying much more for the same services. Because you only pay for the time the payroll specialist is actually using when you outsource, vs full time for an in-house specialist, you can save a great deal, especially when you consider benefits, such as having a specialist on call to help with payroll at all times, without you having to pay for that availability. Outsourced labour is also tax deductible, similarly to hiring a consultant or freelancer to help.
How Much Does It Cost to Outsource Payroll?
The cost of payroll outsourcing can vary a great deal depending on the size of your company, your specific needs, how often you pay employees, and the condition of your files. Many payroll companies charge a per-month package deal based on the general number of employees you have, others charge per employee, or rarely, per hour. With basic costs ranging from around £4-25 per payroll per month, or base rate charges starting from around £25 per payment run plus £2.00 per payslip, it is important that you compare your options, ask for quotes, and then take the time to compare qualifications and prices to get the best value for your money.
Is Outsourcing Payroll a Good Idea?
Payroll may be one of the most commonly outsourced business jobs, but it’s not always a good idea. For example, if your business is large enough to handle hiring a full time accountant or bookkeeper, then insourcing may be the best way to go. Smaller businesses, who can’t afford a full time professional, should usually consider outsourcing, not because it’s more cost effective, but because it’s more accurate than doing things in-house. Statistics show that as many as one in three employers has been charged for making a payroll mistake, and penalties are high. This is especially important considering that tax requirements and payroll regulations change frequently, so even if you are familiar with regulations now, you might still make mistakes in the future.
How Does Payroll Outsourcing Work?
When you hire a payroll service, accountant, company, or freelancer to help with your company, they simply take over your weekly, bi-weekly, or monthly payroll. You send them your employee data including hourly wage, benefits, hours worked, etc. and they handle all of the details to present you with calculated payroll and tax for each employee. Services also often include printing and mailing out checks or direct deposits, sending tax documents to employees at the appropriate time of year, and can tie in with other services such as handling retirement and benefits. This also includes calculating and filing taxes with the HMRC on a weekly basis, which can save you a great deal of time.
Payroll Outsourcing vs. Insourcing
Choosing between payroll outsourcing and insourcing is a decision that you will have to make, but an important one. Payroll outsourcing is a best fit for any business that cannot afford to insource, or that has more work than a single accountant can handle properly. Insourcing, which can refer to hiring a payroll specialist or having someone on your staff handle the payroll, is valuable to those who cannot afford additional services, or who prefer to have their in-house accountant handle everything. Outsourcing allows you to pay for flexible payroll services on an as-needed basis, so you can easily handle changing work hours, freelancers and consultants, and changing employees without running into tax errors.
Outsourcing payroll services can be a cost effective choice for your business, but it is important that you choose the right professional or company to do the work for you. Research your options, compare the results, and choose the best option for your needs and budget. You can use ABCO’s free service to find and compare payroll companies in your area.
How can outsourcing save me time?
A 2013 survey of over 1,500 small businesses showed that more than 50 per cent of small businesses spend 5 or more hours per month on payroll, with 14 per cent spending as much as 10 hours per month. While this is fine if you have the extra hours, your time may be more valuable than the cost of outsourcing. The same theory applies if you are paying a manager to handle payroll, they could be spending time they need to help run your business handling payslips, and they could be more costly per hour than an outsourced payroll clerk.
Can Outsourcing Help to Reduce Costs?
In-sourcing payroll might seem cost effective but it often isn’t. Even if you’ve chosen to use payroll software with cloud functionality for easy reporting, you’re probably paying monthly for those features. Because you’re also either paying an accountant full time or paying for your manager’s extra hours, outsourcing payroll for a flat rate fee can considerably reduce costs.
Does Outsourcing Improve Reporting?
The HMRC requires consistent weekly reports for their new real time information (RTI) obligations, so your reporting has to be excellent. Outsourcing payroll means that a professional will handle all of your payroll reporting, because it is included with calculating payroll and taxes, which saves time, and cuts down issues.
Can I Reduce Payroll Errors by Hiring a Clerk?
Payroll errors are common, to the point where one in three employers reported having reporting or payment errors. Because errors also affect your profits and your employee satisfaction if the error is over or under paying, reducing them is extremely important. Deducting taxes can also be complex and error prone when you do it yourself, which can mean heavy penalties and fines.
How to Avoid Payroll Penalties
By filing properly, keeping up with changing regulations, and processing correctly at the end of the year, you can reduce or remove penalties altogether. For example, calculating different pension rates for employees, issuing the right paperwork (P60 is standard) or issuing P45 files for leaving employees isn’t always straightforward. New regulations, such as the Full Payment Summary and Employer Payment Summary can also be difficult to keep up with and understand, which may result in penalties when filing. Hiring a payroll clerk is a very good way to avoid penalties, simply because the person doing the paperwork will understand everything.
Utilising a Payroll Expert
Some 40% of businesses choose to insource their payroll, either through in-house accounting, or through allocating the task to either the owner, or one of the managers. Outsourcing payroll allows you to utilise a payroll expert with a full knowledge of paperwork, filing regulations, requirements, and professional experience with tax deductions and pensions.
How Outsourcing Payroll Helps You to Avoid Losing Assets
If you put time and money into training an employee to handle your payroll, it can hurt the company if they leave. This is also true if you hire a full time accountant who decides to look for a new position; it can hurt your business until you find and train a replacement. Outsourcing payroll helps to avoid these issues, because you’re not resting your needs on one person or investing in them, but rather relying on a professional payroll company that can handle everything.
How Does Payroll Management Help?
Payroll outsourcing has a lot of benefits but the most obvious to businesses of every size is flexibility. By outsourcing payroll, you ensure that you can handle changing payroll needs, contractors, freelancers, and changing employees with ease, even on a weekly basis. This gives your company the versatility to quickly adjust to changing workforce requirements, which is perfect for most types of small and medium businesses, especially restaurants and shops, who often bring in employees based on demand.