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How much does it cost to outsource payroll?

If you're planning to oustource your payroll, you'll want to find out exactly how much payroll costs. The cost will typically depend on the size of your business. If your business employs under ten people, you can expect to pay around £4.00 per person for monthly payroll processing. Some companies choose to outsource HR at the same time, which of course, would raise the price of monthly payroll. 

Firstly, there is usually an initial cost to set up payroll.  The cost to set up the payroll system can vary depending on the size of the payroll system you need for your company. The larger the company, the bigger the cost will be, but watch out as some companies have a minimum fee in their terms and conditions, so make sure you meet all requirements so that you are not spending more than you need to. We’ve listed a number of factors that will affect your ongoing payroll costs. 

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Is it cheaper to outsource your payroll or to hire payroll staff?

The short answer to that question is - it depends. 

The cost of outsourcing payroll can often be lower than employing your own HR staff, however, this depends on the size of your organisation. Employing In-house payroll could mean employing new staff or training current staff or implementing new software so you’ll need to carry out calculations to see which option is cheaper. 

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Factors that affect payroll costs:

Firstly, there is usually an initial cost to set up payroll.  The cost to set up the payroll system can vary depending on the size of the payroll system you need for your company. The larger the company, the bigger the cost will be, but watch out as some companies have a minimum fee in their terms and conditions, so make sure you meet all requirements so that you are not spending more than you need to. We’ve listed a number of factors that will affect your ongoing payroll costs. 

Auto-enrollment fees

Where payroll systems can catch you out and cost you a lot of money is through the Auto-Enrolment fees. Auto-Enrolment is a time-consuming job but they can charge an excessive amount of money that is not justifiable, which could put many companies off getting a payroll system, so make sure you check the auto-enrolment fees are before implementing the system

Additional fees

There are often additional add-ons which will increase the cost. Payroll companies offer services such as printing the payslip on paper and sending them to the employees or the company. However, this can be reduced by opting for an online version, so make sure when you are getting your payroll system, you only opt into the services you will need, to help the running of the company. 

Reports

Another feature which payroll companies can charge extra for is through their reports service.  Payroll reports can be very useful for companies but the price can vary depending on what report you need. You can save money by only opting for the normal reports which is normally included within the payroll costs. 

End of Year Fees

Payroll processing has now been replaced with a less time-consuming payroll submission to HMRC, so each time the payroll is processed by the company, this might cost you. At the end of the year, please make sure you ask your payroll company if there are any additional fees or extras. For example, you could be paying extra for the P60’s because they have to be printed and posted.

Be careful when leaving a payroll company

If you have decided to no longer use the payroll service because you want to do payroll yourself or use a new payroll company, then you could be charged an exit fee. Make sure you check terms and conditions before leaving the payroll service.

Why should I outsource my payroll? 

There are several factors to consider when outsourcing payroll. For example:

  • The Cost

The cost of outsourcing payroll can often be lower than employing your own HR staff, however, this depends on the size of your organisation. Employing In-house payroll could mean employing new staff or training current staff or implementing new software so you’ll need to carry out calculations to see which option is cheaper. 

  • Need more time? 

Time is money for many business owners. If you are a busy entrepreneur who needs to cut down the to do list to give time to other, more important tasks, outsourcing payroll is a great way to do just that.

  • Not having the right expertise 

Payroll can be a difficult task for many business owners. You’ll need to make sure all the payments are correct for every employee and everyone is paid on time. Payroll is not just a case of adding up the time worked and then multiplying by the hourly wage, there are many other factors to add to the calculation such as, income tax, national insurance, holidays, student loans and more. Training a current employee will take time and you may find that you’ll have to train two employees so that one can take over from another should the first member of staff be unavailable. 

  • Reduced Fines

The Internal Revenue Service estimates that yearly, 40% of small businesses are paying fines of £845 for overdue payments or filing mistakes. These continuous mistakes can result in audits and penalties that are not beneficial for any company.

When you are using an outsourced payroll provider you can be sure that you will have the tax filings, payments and taxes error-free. You just need to provide the payroll company with the correct information and the professionals will take care of everything, so you will have time to concentrate on the tasks that will make your company more profit in the future.

  • The rules frequently change

The rules and regulations imposed by the Government are continuously changing and it’s hard for business owners to keep track of all these changes as well as run their business. That’s why when hiring a professional payroll provider, you don’t need to think about the everchanging rules and regulations. A professional in this area it’s probably going to make fewer mistakes than a current employee that is not certified. 

  • Data confidentiality

When businesses consider payroll outsourcing, identify theft is one of the biggest considerations. In house, staff are more likely to steal funds from the company or destroy business documents for their own personal interest even if we are talking about the most trustworthy employee. This is why it is a good idea to find and hire an external expert in this area. 

A lot of payroll providers have the technologies to inform customers about different categories of payroll fraud. Also, online payroll platforms store and protect your payroll data and keep it confidential.

  • Access to more advanced payroll software

Payroll companies will have access to the best payroll software available. It’s important for small companies to have the updated version of the payroll software and the most recent tax tables. When you are outsourcing the payroll as the owner, you don’t have to think about these issues, because it will all be handled by the payroll experts. 

 

 

Outsourcing Payroll FAQs

Using an accountant or payroll provider to run your payroll on your behalf can save a lot of time in reducing your workload. The cost will depend on how often you run your payroll, how many employees you have, and how complex your payroll structure is. For a small UK business with monthly payroll and with no more than ten staff, payroll usually costs around £4-£10 per month per employee.

Does it Cost more to Outsource Payroll?

Cost savings are one of the most common reasons for choosing to outsource payroll. If you have an in-house finance employee, they may run payroll for you. However, if you do not already have the software or staff to run your payroll, then outsourcing can be significantly cheaper.

Managing your payroll includes costs such as:

  • Staff costs to run calculations and work out salaries, holiday pay, sick pay, bonuses and commissions payable.
  • Admin costs for payslip printing paper and equipment.
  • Software costs to purchase HMRC compatible software.

How Can I Manage my Outsourced Payroll?

Payroll providers may be a standalone service or may be an accountancy practise that offer payroll as one of their services. Either way, your payroll provider will be experienced in calculating pay, understanding tax codes, and submitting records to HMRC.

Typically you will agree a set day of the month when your payroll will be run and can submit changes and amendments at any point up to this day.

If changes need to be made retrospectively to your payroll, such as a sick day taken on the last day of the month, this can be adjusted for in the following month.

Is Outsourcing Payroll Secure?

Experienced payroll providers have built-in security to ensure that all staff data and payment information is kept strictly confidential. You can agree with them how you would like payslips and forms such as P60s to be distributed to your staff.

Using an outsourced payroll provider is often more secure than running payroll in-house:

  • Payroll providers will use secure servers to store data and provide back-ups in case of any data loss.
  • Your payroll will be run off-site, so there is no risk of confidential salary information being shared between your payroll staff and other employees.
  • The risk of fraud is removed; with an independent professional running your payroll and reporting directly back to the appointed HR Manager or company representative.

How much does Outsourcing Payroll Cost?

Most payroll providers will agree a fixed fee per member of staff, or month depending on how many employees you have and which fee structure your business falls into.

The average cost is around £4-£10 per month per employee for a UK payroll of no more than ten staff.

Multiple factors will impact the cost of your payroll, such as:

  • How many staff you have?
  • Whether you have high staff turnover or employ temporary workers?
  • How often you pay your team - usually weekly or monthly?
  • How complex your payroll structure is - businesses with weekly bonuses, commissions and variable performance-related pay may cost more than those with fixed monthly salaries.

What are the Benefits to Outsourcing Payroll?

Paying your staff accurately and on time is a critical business function, and there are many benefits to choosing to outsource this regular task:

  • Saving time to focus on other areas of the business.
  • Ensuring circumstances such as holiday pay or sick leave are dealt with promptly and accurately.
  • Being able to rely on a payroll provider without needing a back-up service should your in-house employee responsible for payroll be unwell or on leave.
  • Keeping your payroll records secure and private.
  • Saving time and costs of training when employment legislation changes.
  • Adhering with GDPR requirements around payroll data management.
  • Flexibility to make quick changes to your payroll or rates of pay.
  • Professional support with choosing the best way to deal with changes to your payroll, bonus schemes or rates of compensation - for example, changes to minimum wage or how hourly pay is impacted when a member of staff reaches a certain age.
  • Support with PAYE audits and returns.

Will an Outsourced Payroll Provider Need Access to my Bank Account?

You can decide how you would like to manage your salary payments. Most payroll providers will request access to your business bank account to be able to set up your BACs payments.

A professional payroll provider can be given a restricted login to enable them to access only those services relevant to making payroll payments. You can also look for a certified BACs Bureau for assurance that your payroll provider is suitably accredited.

Other providers may be able to submit calculations and payment instructions to you if you prefer to create your payroll payments yourself. However, it is far more efficient to use a reputable payroll provider who you are comfortable with running this for you.

Another option is to have a two-step security process, or an authorised signatory in place to approve outgoing payroll payments. Most banks will offer a service whereby your payroll agent can create your BACs instruction, and then a business manager can log in to approve the payment before it is made.

How Much Notice Do I Need to Give for Changes to my Outsourced Payroll?

You should agree with your payroll provider in advance how much notice they require to make amendments to your payroll - this is usually run on a fixed day of the month, and you will have a cut-off in place to make any changes.

Most payroll is run through BACs payments, which take three working days to arrive:

  • Day 1 - the payroll is run, and the BACs instruction is processed.
  • Day 2 - the bank processes and approves the BACs payment.
  • Day 3 - the business account is debited, and the funds arrive in the employee bank accounts.

What Aspects of Pay can an Outsourced Payroll Provider Manage?

Payroll providers have a comprehensive service to manage all aspects of your payroll. This includes:

  • Setting up new staff.
  • Processing leavers or staff retirements.
  • Maintaining employee files.
  • Keeping up to date with tax code changes instructed by HMRC.
  • Running pay for sick pay, holiday pay, maternity and paternity leave.
  • Managing pension payments and auto-enrolment.
  • Accounting for bonuses, commissions and discretionary pay.
  • Making secure bank payments.
  • Producing payslips, reports and P60s.

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