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Payroll Outsourcing - Good idea/Bad idea?

The answer of course will be different for each business. If the right provider is chosen, outsourcing will deliver a quality service at a cost rarely matched by an internal operation at the average UK employer.

Remember, an internal operation does have a ‘real’ cost even if the job is given to an existing employee. When would they find the time? What happens to their own duties whilst they spend time on payroll? Do they have the skill sets to ensure compliance in the increasingly complex area of payroll?

Indeed in the current climate the emphasis should be focusing on core activities to drive through the hard times, not removing a negligible cost.

So you have decided that outsourcing your payroll is right for you? What are the benefits and the pitfalls? How do you choose the best provider?

The benefits

Nearly all payroll service suppliers will reel off a list of benefits, however, I believe that there are two main benefits for the typical UK employer:

  1. Reassurance that statutory obligations are met and that the potential non-compliant financial penalties are removed.
  2. Allows staff, and therefore the business to concentrate on core roles/objectives.

The pitfalls and how to choose your supplier

The potential pitfalls are largely dependant upon the supplier chosen, but can range from a basic lack of communication to the failure to deliver on the perceived core service provision.

Whilst you can outsource the processing you cannot outsource your obligations as an employer, so you need to be sure you choose the right supplier.

A quick search on the internet will deliver hundreds of providers, ranging from the single professional to the large international bureaus. Both have their place but which is right for you. What to consider?

  • Does the bureaus client base mach your profile? A five employee payroll may be lost in a bureau that typically processes payrolls of 500+ staff, and a small bureau may not cope with a larger payroll.
  • Make sure the bureau has a detailed Service Level Agreement (SLA) document. You need to be sure what they will and will not be responsible for. A good SLA will list the duties and responsibilities of both parties, and remove the chance of surprise.
  • What is their fee structure? If they sell a fixed fee, is it really fixed?  Certain tasks may have fixed fees, however, the final bill can be far removed from the initial ‘headline’ fee
  • Do you want a supplier to handle payments for you? If so look for a BACS approved bureau as they are audited every three years.
  • How good is their security and do they have good contingency plans?
  • How do they accept input and how do they give output? Will their reporting match your requirements?
  • How flexible can they be on deadlines?
  • Do they have a wider support network to call upon for those less common but very complex issues that may arise?
  • Ask for references.

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