Outsourced payroll – the complete guide to payroll outsourcing for 2021

As a business owner, you need to wear many different hats. From accounting to marketing, there is a lot that needs to be considered. This is why many business owners decide to outsource elements of their company, from looking for a viable outsourced HR solution or outsourcing their payroll.

What is outsourced payroll and why might you need it?

Outsourcing payroll simply means hiring an external business to handle all of their payroll functions for each pay period. There are a number of different benefits that you may be able to unlock by going down this path. This includes the following:

  • Save money
  • Save time
  • Stay compliant with updated PAYE Legislation
  • Purchase and maintain appropriate software packages
  • Reduce the need for in-house trained payroll staff
  • Get help with international payroll requirements
  • Enjoy peace of mind that this complex part of your business is taken care of for you

Whether or not outsourcing makes sense for your business will depend on the complexity of the payroll requirements at your business, as well as the effectiveness of the third party you choose to handle your payroll requirements.

Outsourced payroll services vs. in-house payroll: what’s the difference?

Now that you have a basic understanding of what outsourced payroll services are, we are going to take a look at all of the options available to you in further detail so you can get a better understanding of what you need to consider when choosing how to get your payroll services done.

Outsourced vs. In-house

There is no right or wrong answer when it comes to choosing between outsourced and in-house payroll. After all, every business is different, and has different requirements, budgets, and needs. Considering that, we will take a look at the pros and cons of outsourcing payroll and handling it in-house so that you can deduce which options will be the best for you.

Costings

Outsourcing can be a lot more cost-effective. This is because you pay for the service as and when you need it. Rather than paying for a team on a part-time or full-time basis, and all of the costs that are associated with this, you only need to pay for payroll services when they are required.

It is worth mentioning that there are many costs associated with taking on new employees, from training to employee benefits packages, and you will not need to worry about any of this if you go down the outsourcing route.

The best thing to do is work out the total cost over a year for your firm in terms of outsourcing and handling payroll in-house. This calculation should enable you to determine which option will make the most sense from a financial standpoint for your business.

Time constraints

Another benefit of outsourcing payroll is that you will be able to free up time at your business to focus on what you do best, i.e. your core services. While you may need to take some time to find a payroll service provider that suits your business well, once they’re in place, you don’t have to worry about training them or any of the other HR issues you might experience when taking on a member of staff.

Experience

You can also have the peace of mind that the people working on your company’s payroll requirements are experienced and have the necessary training and knowledge of PAYE and any other tax regulation, so long as you have chosen the company with care, of course. This will give you great peace of mind that everything is being handled effectively and in line with the current regulations.

Are there any drawbacks to outsourcing payroll?

At the same time, there are some potential drawbacks associated with outsourcing, so it is critical to be aware of these so that you can protect yourself accordingly. One of the concerns is a lack of control. After all, you will be handling over an element of your business operations to an outside provider, which a lot of people find quite daunting.

Quality and communication concerns do plague a lot of business owners as well. This is why you need to take the time to find someone who has plenty of experience and a good track record. Take the time to read reviews that have been left by others.

You also get on-site availability when you are handling everything in-house, which is something that is not possible with outsourcing. This means that you can address a problem straight away or get the answers you need immediately when your payroll personnel work at your business.

Outsourced payroll vs. Payroll software

Not only do you have the option of outsourcing your payroll requirements, but you could simply use a software solution to automate the process. This is something that more and more businesses are turning to today, as technology becomes more advanced.

If you do decide to use payroll software, you will need to make sure there is some competence within your business to be able to use and maintain this solution effectively. Nevertheless, it can cut down the amount of time your business spends on payroll activities considerably.

Outsourced payroll services: What to look out for

There is a lot that needs to be considered when looking for an outsourced payroll provider. One of the main factors you need to think about is what sort of features you are going to get. Typically, when you outsource payroll functions to a third-party provider, you can expect:

Running payroll and making calculations for employee pay and withholding
Withholding pension and social security contributions
Administering employee benefits
Filing required government reports
Calculating payroll taxes and making tax withholding payments
Depositing funds to employees directly

To make sure that you benefit from the best possible service from your payroll provider, there are a number of key questions that we recommend asking:

  • Do you help with generating tax forms for tax filing purposes?
  • How much do you charge for running payroll per employee?
  • Do you provide a different pricing structure for higher volume?
  • What is your basic package?
  • What sort of add-on services do you provide?
  • Do you calculate tax withholding for every employee?
  • How many clients do you have?
  • How long have you had these clients?
  • How do you ensure that all data is kept confidential?

There are some key factors to consider to determine whether or not to outsource payroll at your business. Here are some of the main elements:

The cost of using an outsourced payroll team in comparison to the cost of using an in-house payroll team.
How productive your business is at the moment. Would outsourcing help this?
Accuracy of employee payroll. Do you find you are currently making a lot of mistakes? If so, outsourcing makes a lot of sense.
How quickly would an outsourced payroll provider be able to process payroll payments?
How much knowledge about the industry and the technicalities of payroll does the company have?
If things go wrong, where does the accountability lie? This is something that you always need to consider when you outsource any sort of service.
Does the provider give you the flexibility to make the most of the skills of your staff members where they would be more advantageous? If this is something you are thinking about, you may want to consider looking for a payroll company that provides a managed service.
The integrity and security of the payroll process and data management also must be carefully considered when looking for a company for payroll.

Outsourced payroll for small businesses vs. enterprise vs. public sector/education

One factor that you do need to consider is the nature of your business. For example, seeking payroll services for a small business can differ from requiring payroll services for an establishment in the public sector. This is why it makes sense to look for a service provider who has experience in your industry.

You may be wondering why this matters. However, it is worth noting that public sector organisations are subject to different rules and regulations when compared with businesses. You also need to consider the fact that companies with nationwide employees only will have different payroll requirements when compared with employees with a global presence. Therefore, it is critical to work with a company that understands your business and where you are positioned within the market.

Pricing: how much does outsourcing payroll cost?

There are a number of different factors that will influence how much you are going to pay for payroll services. The size of your business will very much impact how much you can expect to spend. According to Startups, the typical cost for a small company of 10 people or fewer is around £4 per employee per month. However, prices can vary from £5 to £12 per employee depending on the size of your business.

ServiceFeatureCost
Advanced payrollAdvanced payroll includes everything your company could possibly require.Around £12 per employee per month
Mid-level payrollIncludes basic elements and some other options as well.Around £8 per employee per month
Basic payrollThe most basic packageAround £5 per employee per month

In addition to this, you can find that the cost of payroll also differs depending on the sort of payroll service you require. For example, do you want the service to be fully managed or are you looking to still have a hand in the payroll side of your business?

Also, a payroll service is typically going to be calculated as a monthly or weekly charge, with the fee being based on the number of employees you have. However, not every business is going to structure their service in this way, so make sure you check out the payment terms before proceeding with a certain supplier.

One thing we would say is that you should be mindful of simply looking for the cheapest payroll provider. When you do this, you could end up purchasing something that seems too good to be true. Yes, look for a good price and a fair price. However, do not simply go for the cheapest payroll provider you can find without considering other elements like experience and security too.

How to outsource payroll

There are a number of different factors that you need to consider when outsourcing payroll. With that being said, here are some of the factors to keep in mind to find the best payroll provider for your needs.

FeatureGood to know…
AccreditationsThe first thing that you should look at is the accreditations the company has. The Payroll Assurance Scheme (PAS) accreditation is a good option, for example. When a company has accreditation, it provides a testament to the service they provide.
ExperienceYou should also take a look at how long the company has been providing their services. You want to be sure that they have plenty of experience in the industry so that they are best placed to provide you with the assistance you require.
SecurityOne factor that a lot of people tend to overlook is security. However, this business is going to be storing and managing critical data pertaining to your business, so you need to make sure that they have a high level of security in place.
SupportAside from this, you will want to find out more about the support that is provided by the company. How will you communicate with the business? How often can you expect to hear from them? These are the sorts of questions you need to be asking.
ReputationFinally, make sure that the company you select has an excellent reputation in the industry. Take the time to read reviews that have been left by others who have outsourced their payroll requirements to the company in question before. Use independent review websites so you can make sure the comments that have been left are genuine.

How to outsource payroll

  1. Find a third-party payroll service provider

    There are a number of different factors that you need to consider when outsourcing payroll, including accreditations, experience, and reputation.

  2. Contact the company you’re interested in to discuss your requirements

    Once you have found a company you are happy with, you can use their online form to make contact with them. You will then be able to discuss your requirements and how the service will work.

  3. Decide on a part- or fully managed service

    Do you want the third-party provider to handle all payroll requirements? Or, will you still handle some in-house?

  4. Provide the company with all of the information they need

    You will need to provide the company with all of the information required about your employees and their pay. The company will give you a full list of all of the details you need.

  5. Set-up regular payments

    You will typically pay the payroll company per month, so payment may be via direct debit. It does depend on the company in question. Either way, you will want to get this organised.

Best payroll outsourcing providers

PositionCompany nameWhy they made our list…
1Jeffreys Henry LLPFirstly, we have an accountancy firm that is based in London; Jeffreys Henry LLP. The company has an outstanding reputation in the industry, having been established back in 1880. They offer both part-managed and fully-managed services, ensuring they can be catered to suit your needs.
2PayplusShining when it comes to customer support and customer service, you can expect a great experience when you choose Payplus for your payroll requirements. You can be sure that your staff will be paid the correct amount, on time. If you are not, you can get your money back!
3Crystal HR & Payroll LtdWe know that one thing a lot of companies are looking for is specialists that can provide them with a personal touch. We believe that this is what Crystal HR & Payroll Ltd do. They also provide a number of specialist packages, including one person payroll, carer payroll, and nanny payroll.
4ADP PayrollAnother provider to consider is ADP. ADP provides both HR services and managed payroll so that businesses are supported throughout every stage of the employee lifecycle. If you want to fully outsource, this is an option to consider, but it is worth mentioning that a part-managed service is not possible.
5Just Payroll ServicesIf you want to work with a provider who only focuses on payroll services and payroll services alone, Just Payroll is the obvious choice. They have an online solution that offers lots of great features in a secure environment, so you can manage and store data with full confidence and peace of mind.
6MHRWith one of the most sophisticated hosted payroll solutions you will find in the sector today, MHR is a great option to consider. You will experience a central business hub that consists of time-saving HR functions and powerful payroll processing capabilities. MHR work with a lot of big names too, including Experian and Microsoft Azure.
7MoorepayOf course, we had to include Moorepay; a company with more than 10,000 customers in the UK and 55 years of experience. They provide tailored solutions to suit companies of all sizes, from startups requiring payroll services to global businesses with many different locations.
8CeridianFor those seeking a bespoke payroll software solution, Ceridian makes sense. You can apply different rules to your payroll and experience the benefits in real-time. This solution can be used to manage employees across 80 different countries at the moment, and this number is growing all of the time.
9EquiomThis is an international business that handles a wide range of services for companies. Therefore, if you are looking for something a bit more than payroll, this is a good option to consider, as you can also leverage the likes of accounting and cybersecurity. The payroll service they provide will ensure that your business remains compliant.
10PayescapeA fast-growing company that provides online payroll services. The system they provide is accessible from any device, giving you the ability to manage documents, track employee data, and organise your payroll with ease. Your employees can also view their payslips and request holidays using Payescape.

FAQ

Why do companies outsource payroll?

There are a number of different reasons why businesses decide to outsource payroll. One of the main reasons is because they feel like they are struggling to find the time to dedicate to payroll within their business. Aside from this, motivates include lowering their business expenses and benefitting from an expert service. Outsourcing to expert payroll providers can help you to stay up to date with all of the latest rules and regulations.

How to outsource payroll?

To outsource payroll, you need to find a quality third-party provider who can take care of this for you. Spend some time looking online for an experienced company. Be sure that they have a good reputation in the industry and that you are happy with their approach to working and communication methods.

What is outsourced payroll?

Outsourced payroll refers to using the services of a third-party provider to take care of all payroll related activities for your business. This is the opposite of handling a service in-house.

How much does it cost to outsource payroll?

If you are thinking about outsourcing payroll, you will want to know how much it is going to cost to do so. The prices can differ from company to company, and they are often based on the scale and complexity of your payroll needs. Plus, companies have different payment structures as well, be it monthly bills or quarterly payments. Therefore, it makes sense to get quotes from a number of different payroll providers so that you can determine which one makes the most sense for your budget.

What is the best payroll outsourcing solution for a small business?

When looking for the best payroll outsourcing solution for your small business, it makes sense to look for a solution that is affordable and easy to understand. Look for a company that has the experience and is reputable in the industry. You may want to look at their client base to make sure that they mainly work with small companies like your own.

How does outsourcing payroll work?

Once you find a payroll provider you are happy with, they will explain their working process so that you know what is involved and what to expect. Nevertheless, you will generally need to provide the payroll company with all of the information relating to this area of your business. The company will then be able to carry out any of the services you need. The payroll functions that these businesses will typically handle for you include making tax withholding payments, calculating payroll taxes, issuing cheques to employees or depositing funds directly, making employee pay calculations, and of course, running payroll.

How to choose a payroll outsourcing provider?

There are a number of different things that you need to consider when you are looking for a payroll provider. Firstly, we recommend looking for a business that has a decent amount of experience in the industry. You should also read reviews that have been left by others on independent feedback platforms so that you can be sure the company you have selected has provided a good service to others. Furthermore, you will want to find out what sort of features their service covers; what does their payroll offering entail? How easy is the service to access and use? How will you communicate with the company? How much is payroll outsourcing going to cost? These are all the sorts of questions you should be considering when looking for the perfect payroll provider for your needs.