Payroll is a vital part of your business. The government requires you to collect tax and National Insurance (NI) under the PAYE system, and imposes penalties for failure.
The many complications include processing statutory maternity pay, calculating occupational pension contributions, and paying employees late or incorrectly.
Hiring a payroll service provider lets you outsource a whole range of activities, ensuring that everything is done correctly and efficiently. This allows you more time to concentrate on core business activities, and less time worrying about bureaucratic formalities.
How it works
Payroll outsourcing has become a very common method used by small and medium sized businesses that do not want to be involved in the hassle of running their own payroll.
It can work in a number of ways but normally you provide details on a weekly or monthly basis to the payroll provider. The provider then processes the your payroll and sends you back payslips with all calculations, including net pay, PAYE and National Insurance. Most payroll bureaus also deal with year-end returns, including P35, P14 and P60’s.
There are several options available for the actual payment of salaries to employees. You can choose to pay by cheque or by BACS (more common). Other options offered by payroll service providers include the provision of management reports either by department or by type.
Advantages of outsourcing payroll services
There are a couple of advantages to outsourcing payroll services:
- Time and effort saved through outsourcing allows staff to focus on core business issues.
- Payroll outsourcing makes compliance with tax rules and government regulation easier and more effective. No need to try and keep up to date with complex changing legislation.
- Can be one of the most cost effective outsourcing areas. Scale efficiencies at payroll service providers make them very efficient. Fees are generally lower than for most other accounting services.
- No need to worry about holiday cover for payroll.
- Can eliminate payroll training costs for both legislation and software.
- Reduces need to invest in payroll-related software or technology upgrades.
- Increased security against data losses as personnel information is backed-up on payroll providers’ systems
Disadvantages of payroll services
There are a couple of disadvantages to outsourcing payroll services:
- Perceived loss of control. Changes in your payroll must be communicated to your service provider.
- Less flexibility in how payroll is produced and how reports are generated, especially for those companies with complex accounting requirements
Things to watch out for
Aside from the disadvantages already mentioned, there are a number of things you should be aware of as regards payroll services:
Other buying suggestions:
- Negotiate the contract well. There are so many outsourcing companies now that deals seem easy to make. However, when writing the contract, think about:
– How will adjustments to the payroll be accommodated?
– Will these changes be included in the price, or be billed on an individual basis?
– If your company is taken to court on some payroll issue, who is liable?
– What is the frequency and type of reports that will be available?
– What is the charge for additional reports?
– For how long will the contract apply?
- Once the contract is signed, don’t assume that everything will go as planned. Manage the relationship with your provider by constantly evaluating how satisfied your internal customers are with the system and providing feedback to the provider.
- As a precaution, carefully review the first paycheques issued as well as the money paid to cover taxes