Overview

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

• 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

• 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:

When choosing a payroll service provider, consider the following:

• Make sure they provide a high level of customer service. In particular,
  
  
  • Will they provide a single point of contact who is available to deal with any queries on a day-to-day basis?
    
    
  • Are they flexible enough to deal with adjustments after the provision of the initial information?
    
    
• Look at the adequacy of security procedures regarding the data held.
  
  
• Evaluate their ability to create a smooth handover from your present payroll procedures
  
  
• If the service provider's business is primarily payroll, they need to have a substantial client base to ensure stability. An ideal provider should support several hundred clients.
  
  
• Since every industry has different processing requirements, make sure the provider has experience with companies similar to yours. Check out references if necessary.
  
  

• 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 will they 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
  
  

Frequently Asked Questions (FAQs)

• Is there a system in place in the organisation that will issue payments effectively and on time?
  
  
• Is the company internally able to do the calculations and deal with the details of the payroll with almost 100% accuracy, timeliness and compliance to tax law and government legislation?
  
  
• Does the company have the personnel (and time) to review the accuracy of all the above operations?
  
  
• Is the total number of staff fewer than 20 people?
  
  

Glossary

PAYE Pay As You Earn is a standard payment method required by the UK government that covers any tax payments made to the Inland Revenue from individuals, organisations and companies as well as payments made between any of the aforementioned counterparties

BACS Bankers' Automated Clearing Services is a computerised system which can be used to transfer funds electronically between different bank accounts