Outsourcing Payroll vs In-House Processing

If you had to ask a business owner about the exciting parts of running a company, managing payroll probably won’t be one of them. Calculating tax, managing compliance and checking employee overtime is certainly not glamorous, but it is absolutely necessary.

Just one payroll error can have consequences down the line. Late payments will frustrate employees while missing a tax deadline can result in penalties or worse. Essentially, payroll isn’t something to be taken lightly. Which is why most business owners have to make the call on whether it should be outsourced or handled in-house.

Companies that offer payroll software in the UK include:

1. Rippling
2. Pento
3. Deel

Both have their own pros and cons and what could work for one business may not be suitable for another.

 

Outsourced vs In-House Payroll

 

When payroll is outsourced, it’s handed over to a professional provider outside of the company. This third party is responsible for all payroll-related tasks including tax submissions, compliance with regulations and even employee payslips. All you have to do as the company is provide them with the correct employee and time information and they handle the rest.

On the other hand, when payroll is managed internally, someone within the company is in charge of it. You can use payroll software or spreadsheets to help but everything is done by a company employee whether it’s HR or another individual.

 

 

What You Should Know About Outsourced Payroll

 

A lot of businesses, including startups, are choosing to let third parties manage their payroll. Here are a few reasons why it has become a popular choice.

Saves time: Payroll providers do all of the heavy lifting which means your team can focus on other areas instead of timesheets or tax deadlines.

Compliance: Payroll companies have to stay up-to-date with the latest labour regulations and tax laws. This means they are less likely to make a mistake compared to someone internally unaware of new changes.

Room for growth: If your business is expanding, the payroll provider can accommodate a bigger workload as opposed to you having to hire more payroll staff.

Naturally, there are some drawbacks too. Outsourcing can be pricey especially if you are a small startup team with a limited budget. Also, you’re handing over sensitive information so if the provider doesn’t have strict security measures, that data could be accessed.

With outsourced payroll, you also aren’t in direct control so if there are any issues or delays, you have to wait for the provider to sort them out.

 

 

How Does In-House Payroll Differ?

 

For smaller companies who have just a handful of employees, in-house payroll processing might make more sense. Here’s why it could be the better alternative to outsourcing.

More control: You have direct access to all of the information and if there is a mistake, you can rectify it immediately instead of waiting for a third party to do it.

Saves money: Outsourcing could be overkill if you are just starting out with a small team and expensive. Fortunately, payroll software isn’t too costly and it could be used to save on costs down the line.

Data stays private: Since payroll information is confidential, you may feel more comfortable keeping it inside the business.

While keeping it in-house does feel reassuring, of course there are some expected challenges you may face along the way. It’s extremely time-consuming since it involves calculating deductions, tracking hours and staying on top of tax regulations. If one team member is trying to do it all in addition to other work, it may be too much. Especially if you plan on growing the company and the team will expand in the future.

The risk of mistakes are also higher and when payroll is involved, even the smallest mistake could be costly. And if your team member doing it doesn’t have the expertise required, it’s easy to let things slip through the cracks.

 

Is A Hybrid Approach The Best Option?

 

There is no correct answer when it comes to payroll since every business is unique. Different team sizes, budgets and desire for control will all play a role in deciding whether to outsource payroll or keep it in-house.

Some companies have opted to take a hybrid approach which uses a combination of both. Things like time tracking and calculating benefits or deductions can be done in-house while the more complex tasks of tax and compliance can be outsourced.

In a sense, it’s almost like having the best of both worlds. You can still have control over the data but not run the risk of facing compliance issues or making a mistake that could cost the business, either financially or damaging your reputation.

Whether you choose to outsource, keep it in-house or have a mixed approach, it needs to work for you. Most importantly, payroll should be managed in a way that supports your people and helps to grow your business.