In-House vs Outsourcing Payroll

Posted on 25 August 2011 by Noreen Munro

Payroll OutsourcingIn-House vs Outsourcing Payroll

We look at some of the issues that drive a company's decision to process their payroll in-house or to outsource to a payroll provider.

The main drivers behind a decision to outsource a payroll are:

  • Risk Reduction
  • Payroll Accuracy
  • Keeping up with Legislation
  • Maintaining Confidentiality

A payroll provider will also deliver their best practices and streamline an organistions payroll function. In truth, outsourcing a payroll can be the catalyst to identify and improve upon current processes. With an in-house payroll, there is a tendancy to maintain a 'status-quo' situation.

Some additional benefits to payroll outsourcing are:

Disaster Recovery/Contigency Plans
Not all organisations have contingency plans in place. When in fact they are crucial to the continuation of a business in the event of a disaster. Payroll Companies will have robust DR plans as it is essential to the credibility of their business and long term survival. As well as being a requirement for BACS Approved Bureau status.

Fixed Costs or Variable Costs
An in-house will have fixed payroll costs for salaries, software licences, support contracts etc. As many payroll vendors will charge on a 'per employee' basis, this allows the business to benefit from variable costs. As the majority of business have higher staff levels when they are doing well, the payroll costs will reflect this. When they are perhaps not doing so well and the employee numbers drop, so will the payroll costs. This is of particular benefit to seasonal businesses.

Free Up HR Resources
With an in-house payroll department working so closely with HR, there is sometimes a blurring of the lines between where HR stops and payroll begins. This can lead to HR carrying out administration duties that perhaps could be handled by payroll. Many payroll companies will be able to absorb some of these duties, freeing up valuable HR resources.

Technology Advancements
Payroll outsourcing companies will make large investments into the most up to date payroll software packages and technology. Businesses can take advantage of the technology on offer when they choose to outsource.

Outsourcing isn't for everyone.....

There are of course some reasons a business may prefer to keep their payroll in-house:

Some organisations require flexibility with their payroll cut-off dates and may need to process interim payments for employees. Many payroll providers may not offer this flexibility or make additional charges. This is not always the case and some payroll vendors will be happy to accept payroll amendments right up to final moment, and to make corrections following the payroll run, but it's always worth checking before signing an agreement.

Ease of Payroll Reporting
Many payroll providers will offer standard payroll reporting and make charges for anything more detailed which may be required by your finance and HR teams. Because of this, some businesses would prefer an in-house payroll department of whom they can make requests at any time. Again, there are some payroll bureaux that will be happy to design reports on an ad-hoc basis at little or no charge but this should be confirmed.

Conforming to Strict Procedures
If your business has it's own procedures for recording employee hours and adjustments, a payroll company may require you to replace these with their own. In some cases this may be of benefit as it may streamline and improve your processes. However, if the vendor is to instigate their own routines for their benefit rather than bringing added value to your business, then this may be of concern.

In summary, there will always be pros and cons on both sides of the argument. However, it is always wise for the dynamic business to constantly assess their payroll solution and processes to identify areas of improvement and cost reduction whilst avoiding the status-quo scenario.

Payroll Outsourcing

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