Payroll Services: A Buyer's Guide
For an experienced employer the task of organising a company’s payroll can be a daunting one. For a new employer it can be terrifying to the point of paralysis. But with wage bills typically accounting for 50-80% of an organisation’s expenditure, it’s an essential part of any company and has to be in place and operational from day one. Luckily help is available from outside firms offering a variety of payroll services and tools.
In this guide we'll take you through all the available options, explaining the benefits and drawbacks of each, to make your payroll services buying decision as easy as filling out a P11d. (That’s a payroll joke)
This Buyers’ Guide was written in partnership with our Payroll Business Expert eSlip.
About eSlip:"eSlip manages client payrolls to the highest and most consistent standards each and every time, through an efficient automated intelligence engine and smart, streamlined working practices.
This is combined with an accessible and personable client service ethos, and makes eSlip the clear choice for the delivery of specialist managed payroll services to the UK SME market."
Payroll: What are the options?
Broadly speaking there are three main options when it comes to payroll: managing it in-house, having an accountant manage it for you or outsourcing it to a specialist payroll services company.
In-House Payroll
For a small business owner managing payroll in-house means:
- getting to grips with tax and national insurance calculations for each employee
- being aware of and keeping up to date with changes to employment law
- correctly filing returns to HM Revenue and Customs at the right times of year
- processing payments to employees, HMRC and pension schemes
- providing employees with payslips
Quite an undertaking for someone who also has to oversee and manage the day to day running of the business.
For larger businesses in-house payroll management means having one or more staff dedicated to the function, usually as part of the finance department or HR department. Keeping it in-house means:
- you retain management and responsibility for the correct administration of the payroll
- you retain access to data and reporting
- conflicts can arise (usually neither finance nor HR see payroll as naturally falling within their remit)
- employing extra staff due to the extra work involved
- purchasing expensive payroll software and updating it annually
Payroll Through an Accountant
Small businesses may choose to process their payroll through an accountant. This alleviates the need to perform complex calculations and stay on top of changes to tax and employment law. But accountants are overqualified for this kind of work. They tend to charge high hourly rates and so this way of managing payroll is rarely cost-effective.
Outsourced Payroll
Dedicated payroll services providers exist with a variety of different service levels to suit your needs. Whether your business is large or small, outsourcing your payroll functions can:
- lower costs
- improve efficiency
- free up key staff for other tasks
- provide peace of mind – your payroll will always be compliant with legislation and regulations
- remove the need to purchase extra software and hardware
Outsourcing management of your payroll to a payroll services company can take a variety of forms, allowing you to decide exactly how much responsibility and accountability you want to hand over. There are several levels of outsourced payroll services available so let’s look at each in turn.
Managed Payroll Services
This is total outsourcing of your payroll. The payroll company will not only calculate and process all payments but ensure compliance, taking on the following responsibilities:
- Processing starters and leavers
- Calculating pay for salaried and variable wage employees including performance related bonuses
- Processing BACS payments to employee bank accounts
- Processing payments to HMRC, pension schemes and unions
- Providing payroll software for reporting
- Providing security sealed payslips or e-payslips
- Providing end of year filing
- Handling enquiries from staff and tax authorities
With managed payroll you don’t need to worry about changes to tax codes, providing your employees with the right forms or forgetting to file with HMRC – the payroll company will take care of it all. All you need to supply is the information.
Key benefit: A total solution. Almost no involvement with payroll processing required.
Hosted Payroll Services
This where you retain staff who oversee the payroll operations but the payroll service company provides:
- Compliant software for calculating payments and reporting
- End of year filing
- Security sealed payslips or e-payslips
- Processing of BACS payments
- Telephone and online support for your payroll staff
With hosted payroll you’ll normally still be responsible for reporting to and answering queries from HMRC. Your staff will need to input changes to tax codes and perform all the calculations using the software provided. In essence, you’ll be handling all the data, the payroll company will facilitate the calculations and payments.
Key benefit: Keep a payroll department and have access to data and reports in-house.
Pay-as-you-go Payroll Services
Fully managed payroll is available on a rolling basis as well as on a fixed term contract. This can be useful during organisational changes to your company or when your payroll manager requires maternity cover.
Key benefit: Freedom to change with almost no notice.
Global Payroll Services
If you have staff based overseas you’ll need a payroll company which can cope with international and trans-national legislation and regulation. Tax calculations need to take into account laws in both countries, employment law in the host country needs to be adhered to and payments must be made in accordance with local regulations. Larger payroll services companies can just cover your overseas staff or incorporate these workers as part of a fully managed or hosted solution.
Key benefit: Ensured compliance with laws and regulations between countries.
BPO Payroll Services
Large multi-national companies with operations in many different countries may opt for BPO outsourcing when it comes to payroll management. This standardises payroll throughout the organisation rather than having separate operations for different countries. A BPO payroll provider, as well as ensuring compliance on a worldwide scale, will be used to dealing with large organisations and can easily incorporate mergers and acquisitions into the standard payroll process.
Key benefit: Keep global payroll operations under one roof.
Choosing a Payroll Services Provider
There are so many payroll services providers to choose from, and so many different levels of service that you can almost pick and choose exactly which elements of your payroll operation you want to outsource and which you want to keep in-house. You may like having a person in your company with responsibility for payroll, someone who is visible and available to handle staff enquiries and provide you with information on-demand but want to make their lives easier with software and support. In this case you’ll likely plump for a hosted solution. If cost cutting is your key objective, a managed payroll service provides maximum efficiency.
In any case, you’ll want to watch out for the following:
- Transparent and open pricing: Make sure all costs are provided up front and that there aren’t hidden charges for reporting, end of year filing, starters and leavers, providing P60s, changing tax codes etc. Also, for hosted solutions, check that there aren’t extra charges for software updates.
- Contract length: Make sure you’re not tying yourself into a contract that’s too long or that there is a suitable termination clause. Some industries are prone to rapid, unforeseen changes and you don’t want to be stuck with an unsuitable service or have to pay through the nose to get out of it.
Outsourcing some or all of your payroll functions to an outside company can save you time, money and a lot of headaches. Choosing the right provider is a matter of deciding exactly how much responsibility you want them to take on and then comparing quotes for that level of service. Play your cards right and you’ll never have to worry about P11d forms again.
This Buyers’ Guide was written in partnership with our Payroll Business Expert eSlip.
About eSlip:"eSlip manages client payrolls to the highest and most consistent standards each and every time, through an efficient automated intelligence engine and smart, streamlined working practices.
This is combined with an accessible and personable client service ethos, and makes eSlip the clear choice for the delivery of specialist managed payroll services to the UK SME market."
