Guest blog: The pros and cons of in-housing vs outsourcing payroll

Revolut Contributor

 · 08/19/2020  · 08/19/2020

Nichola Hailes, Payroll Specialist at PayFit

The in-house vs outsourcing debate is one that continues to rage in organisations right across the UK.

Both startups and larger companies ask themselves the same predictable questions: "Should we use someone outside the company?" and "Have we got the capability or resources to do this in-house?"

In the UK, one of the most commonly outsourced business services is payroll. There are several reasons for this: first, payroll is a complex task that requires a certain amount of pre-existing knowledge and spare time; second, a lot of companies do not have the resources to perform the task in-house; and finally, a lot of companies already outsource their finance function and therefore decide to outsource payroll too.

We’ll look at the pros and cons of in-house and outsourcing and determine if businesses can get the best of both worlds.

Outsourcing – The pros

One of the main pros of outsourcing is receiving expert support. Payroll is a complicated and recurring task that is continuously evolving. If companies are unable to stay on top of changes in legislation, they run the risk of not being compliant, which can have severe legal and financial consequences.

Therefore, it is vital that the person administering payroll knows what they are doing and is aware of any changes.

Another advantage of outsourcing payroll is the time saved. Payroll administration is often an extraordinarily manual and laborious process that can take up a great deal of time.

However, by delegating these responsibilities to an external supplier, companies don't have to worry about fiddly tasks, such as processing HMRC and pension submissions, and can instead focus on their core and more high-value tasks.

Outsourcing – The cons

Despite all these perks, there are several challenges associated with outsourcing.

One is the price. Outsourcing something to an industry expert doesn't come cheap. But while cost may be one of the issues associated with outsourcing, there are other areas of greater concern.

Outsourcing payroll is great, if the right person or provider is doing it.

A lot of businesses choose to employ the services of their accountant or finance provider to deal with finance-related admin and often extend payroll responsibilities to them too.

While financial experts may be able to consult, advise and support clients in decision-making processes, payroll is not necessarily their area of expertise. This means that companies could unwittingly leave themselves exposed to payroll errors, particularly if their provider continues to use outdated or manual systems. These errors are often extremely difficult to resolve quickly.

A further issue is the loss of control of important company data. For the majority of companies, payroll is their most considerable expense. Outsourcing can mean poor visibility, leaving companies uninformed about costs and month-on-month evolutions.

Things can quickly snowball, and for companies that rely heavily on budgetary controls the impact of inaccurate data can be severe.

In-housing - The pros

Keeping things in-house certainly has its advantages.

For a start, companies can have full transparency and control over the entire payroll process.

Also, if the employer retains control over how and when payroll is run, internal process changes can be actioned much more rapidly than they would be if the function were outsourced. This includes the ability to reverse any errors and gather all relevant data together in one place.

In-housing - The cons

However, in-house payroll has its fallibilities.

We have already alluded to the fact that payroll can be extremely time-consuming and eat significantly into other tasks. While this is undoubtedly true, the larger issue relates to whether or not payroll is being run correctly.

As with outsourcing, its success is very much dependent on who is in charge of administering it each month and, perhaps more crucially, how they are doing it.

Unless the person is an expert who can keep on top of the regular legislative changes, it is quite likely that errors will occur and the implications can be extremely serious.

In-house payroll with the benefits of outsourcing

For some people, payroll can be tedious and laborious. For others, AKA us at PayFit, it is the best thing in the world! Okay, we may be exaggerating a bit, but the point is payroll is what we do best.

At PayFit, we offer far more than just brilliant payroll software. Our goal is to support clients when administering their payroll, ensuring full compliance throughout. We are an in-house software provider but have all the perks you would normally associate with outsourcing.

Thanks to our dedicated payroll experts who operate under the guidance of the customer success team, we are always on hand to answer all your payroll-specific questions.

As well as helping our clients with individual queries, our product team ensures that the app remains compliant at all times by analysing and implementing the latest legislative changes affecting payroll.

Finally, the app automates calculations and identifies and then highlights any errors made or potential areas of non-compliance. Importantly, this means that people with no prior experience or expertise with either payroll or payroll compliance can use it confidently.

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