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Are outsourced payroll services really suitable for small businesses – or is it cheaper and more convenient to keep things in-house?

There’s still a general perception that outsourcing payroll is something larger companies do. You might reasonably ask ‘larger than what?’ to which the response is typically ‘larger than us’. If yours is a business of 5, you’ll hear payroll outsourcing really only makes sense once you have a team of ten. With a workforce of 50, suddenly the threshold is 75.

But the truth is there is no price threshold for small businesses to outsource payroll. There is no number at which it becomes cost effective where it wasn’t previously. Yes, there are economies of scale for organisations with a staff of thousands. But there are attractive deals for micro businesses too – ours start from just £25 per payroll for 1-2 people – and you can find more about payroll costs for SMEs here.

So if cost isn’t a bar, what are the other SME benefits of outsourcing payroll?

Outsourcing payroll and the question of control

For most SMEs payroll is something that’s either handled by the director (for micro-businesses) or the person – and it’s usually one person – who manages payroll, accounting, billing, HR and often several other jobs.

For some, the perception is that when you outsource payroll you relinquish a degree of control. We’d suggest it does the opposite.

One of the great benefits of payroll outsourcing for SMEs is that it makes payroll a distinct function. Instead of being one of half a dozen roles being juggled by you or your accounts manager, it puts it in the hands of people who do payroll and nothing but.

That can bring lots of advantages:

  • Payroll is always done on time because no other role is competing for attention
  • Error rates are (greatly) reduced because the distractions of other roles are eliminated
  • Payroll is processed quicker, because when you specialise in one thing you inevitably get faster at it
  • You don’t miss changes in legislation (see below)
  • When the person who usually processes payroll is away, another expert takes their place. Contrast that with the typical SME, where the deputy (if there is one) often needs to spend hours getting up to speed

Outsource payroll and you ringfence payroll. You don’t lose control at all. Instead, you give it the focus it demands.

Outsourcing payroll and the question of IT

Unless yours is a digital/tech company, the chances are that the person handling your payroll is not someone who knows IT inside out. So when you keep payroll in-house, you immediately present the person doing it with major a barrier to overcome.

It’s not just the issue of getting to grips with whatever software package you use.  It’s paying for it. Installing it. Updating it, ensuring licences are up to date and keeping the information secure.

That can be an onerous responsibility for someone with only a layperson’s understanding of tech.

So another major benefit for SMEs outsourcing payroll is that virtually all of those issue are removed.

Outsourcing payroll and the question of law

Every year, payroll legislation changes. NI and PAYE rates change. The minimum wage shifts. Occasionally, big initiatives like pensions auto-enrolment present a huge raft of legislation to absorb and implement, with penalties for non-compliance (In 2018, more than 40,000 companies faced fines). And measures brought in as a consequence of the pandemic have introduced new administrative burdens for payroll departments, such as furloughing.

Outsourcing payroll doesn’t only enable your business to effectively hand over the responsibility for keeping up to date with these changes to someone else. It removes the risk of penalties for missing something. Because if your in-house payroll administrator misses something, it’s your problem. If your payroll company slips up, it’s theirs.

Easier to outsource

Today, when an SME keeps the payroll in-house, it’s often because a) aren’t aware outsourcing is a genuine option for them; b) they simply haven’t got around to arranging an alternative or c) they believe switching will be an admin and IT nightmare.

But it won’t. In fact, it will be incredibly simple.

To discover how simple – and to explore they particular benefits of outsourcing payroll for your SME – talk to us.

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