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Payroll: In-house vs Outsourcing

Updated: Jan 20

Insights provided by PayFit


The in-house vs outsourcing debate is one that continues to rage in organisations all across the country. Both startups and larger companies ask themselves the same predictable questions: "Should we externalise this to a supplier?" and "Are we able to perform this task in-house?". In the UK, one of the most commonly outsourced services is payroll. There are a number of reasons for this: first, payroll is a complex task that requires pre-existing knowledge and a lot of spare time; second, a lot of companies do not have the resources to perform the task themselves; and finally, a lot of companies already outsource their finance function and therefore decide to outsource payroll too. In this short piece, we analyse the pros and cons of in-house and outsourcing and prove that there is a way that you can get the best of both worlds.

What are the pros and cons of in-house and outsourced solutions?

In-house Pros - Maintains visibility and keeps everything under one roof at no additional cost. Cons - Takes up time and may not be performed by experts Outsourced Pros - Saves in-house teams time and provides access to expert knowledge. Cons - Expensive, reduced visibility and access to important data.

Outsourcing

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 understands what they are doing and is aware of any changes. Another advantage of outsourcing payroll is the time that can be saved. Payroll administration is often a very manual and laborious process that can take up a great deal of someone’s 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.

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. Let’s be frank: outsourcing payroll is great, providing that the right person 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 with any financial decision-making, 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. Unfortunately, these errors are often extremely difficult to resolve quickly and can have a severe impact on employer reputation and employee morale. 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-House

Pros Keeping things in-house certainly has its advantages. For a start, companies can have full transparency and control over the entire payroll process. Furthermore, 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. 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 responsible for administering it each month and, 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 with extremely serious implications.

In-house Payroll with the benefits of outsourcing

For some people, payroll can seem an eye-wateringly dull topic. For others, basically us at PayFit, it is the best thing in the world! Okay, we may be exaggerating a bit, but the point we’re trying to make is that 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 all while ensuring full compliance throughout. Although we are very much an in-house solution, customers are able to benefit from all of the advantages that would typically be associated with outsourcing. Thanks to our dedicated payroll experts and customer success team, we are always on hand to deliver a premium service by answering all your payroll-related questions. The app automates calculations and highlights any errors made or potential areas of non-compliance using our own coding language. It also means that our product team ensures that the app remains compliant at all times through analysing and implementing the latest legislative changes straight into the code. Finally, this means that people with no prior experience or expertise with either payroll or payroll compliance can use it confidently.


So, if you or your colleagues are currently experiencing challenges with payroll administration, then why not book a demo with one of our product specialists?

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