Outsourced payroll FAQ

If you’re considering outsourcing payroll, or if you’re looking for expert outsourced payroll services — these frequently asked questions can help you confidently decide how, why, and whom to outsource your payroll to

Choosing to outsource your payroll can help free up valuable time, reduce ongoing costs, and provide you with peace of mind that your employee payroll will be accurate and timely. There’s also the additional surety that your payroll outsourcing company will act as your PAYE-registered agent office for HMRC. You can choose between bureau and fully managed UK outsourced payroll service options with Ciphr.

For organisations that want a partnered approach to payroll, bureau payroll services will provide a configurable payroll software solution for your team to maintain control over data entry and instant payroll calculation results. Ciphr’s Bacs-approved bureau will be able to underpin this service with a Bacs service to ensure you have business continuity and risk management of the payroll service. Employees will always be paid on time, even if you are unable to process payroll – we can easily step in if you encounter any difficulties. This offers a truly collaborative relationship between in-house payroll administrators and outsourced payroll payroll administrators.

A fully managed outsourced payroll service allows you to delegate the entire payroll function to a third party. You will normally be assigned to a dedicated payroll administrator who will have responsibility for the delivery of your payroll processes based on the data you submit. Effectively, the outsourced payroll provider becomes your payroll department. They will understand your company’s terms and conditions of service and be able to calculate your payroll according to your rules for pay, benefits and absences. The payroll service provider should provide Bacs submission (via a Bacs-approved bureau) to your employees, HMRC, and third parties. They will also act as your PAYE-registered agent for HMRC, and ensure your compliance with all relevant tax and employment law regulations.

• What is an outsourced payroll service?
• What happens when you outsource payroll?
• What are the pros and cons of outsourcing payroll?
• Is it wise to outsource the payroll function?
• Do most companies outsource payroll?
• Who will be responsible for pensions administration?
• How much does it cost to outsource payroll UK?

Payroll outsourcing FAQs

What is an outsourced payroll service?

An outsourced payroll service describes the appointment of a third party — ie a payroll bureau, an outsourced payroll service provider, or an accountant — to take responsibility for the delivery of your payroll. This includes the responsibility for reporting, administration, payments, compliance with tax and employment laws, as well as acting as your PAYE-registered agent office for HMRC.

What happens when you outsource payroll?

When you outsource payroll to a third party, they process outgoing payroll in accordance with staff contracts by using payroll software. Fully managed payroll outsourcing companies are responsible for keeping your payroll compliant with tax and employment laws, providing relevant paperwork like reporting and payslips, and making accurate, timely payments in line with all of the above.

What are the pros and cons of outsourcing payroll?

The biggest pros of outsourcing payroll include:

1. Payroll outsourcing costs tend to be lower — no need to hire in-house payroll administrators or purchase payroll management software
2. Assured compliance with tax and employment laws
3. The outsourced payroll provider acts as your PAYE-registered agent office for HMRC
4. Your employees are guaranteed to be paid on time and accurately every pay cycle
5. Access to expertise and advice anytime
6. Saves time by removing administration-related tasks

The cons of outsourcing payroll include:

1. Feeling ‘out of control’; any good payroll outsourcing service understands this and should allow you to check and review pay runs before they are made
2. Some organisations are concerned about sharing confidential staff information with outsourced payroll service providers. Your provider should allay any concerns by sharing their ISO27001 (information security management) certification with you
3. Some payroll software used by payroll service providers can be challenging to integrate with your existing systems. Check with your outsourced payroll service provider if their systems are compatible with yours. Consider any business systems that need to interface — such as workforce management systems, online HR system, and finance systems — to ensure good workflows
   
   

Is it a good idea to outsource payroll?

It is wise to outsource payroll to reduce risk and ensure consistent delivery of your payroll. Organisations of all sizes can benefit from choosing to outsource the payroll function; there is no minimum headcount requirement or maximum headcount restriction. Payroll outsourcing frees up valuable time by removing the administrative burden of the payroll process, as well as the need to remain up to date with tax and employment law changes related to payroll. The cost of outsourced payroll is structured on a ‘per payslip’ basis, and by choosing to outsource the payroll function, it may be possible to reduce your payroll costs compared to hiring and training an in-house payroll administrator. There is also the benefit of ensuring your employees are paid accurately and timely for each payroll cycle.

Do most companies outsource payroll?

Payroll is an ideal service to outsource as it is a non-core activity for most organisations. Many companies outsource payroll as a way of reducing costs and alleviating time constraints, while ensuring this critical process continues without disruption. Comparing the costs and risks of hiring a team of permanent in-house payroll administrators, committing to payroll software fees, and the risk of errors and penalties associated with limited staffing — outsourced payroll has become the preferred choice for most companies.

Who will be responsible for pensions administration?

Your payroll bureau will be able to support you with administration related to pensions auto-enrolment and ensure you are adhering to the rules for employees joining pensions schemes. Payroll bureaus will be able to assess eligible workers and advise you of their status. Pension contributions will be accurately calculated, and reports are provided either for your pension scheme or uploaded on your behalf to the relevant pensions’ portals.

How much does it cost to outsource payroll UK?

The cost of outsourcing payroll can be less than hiring in-house payroll administrators. Outsourced payroll services in the UK are typically structured on a ‘per payslip’ basis so, depending on the size and complexity of your payroll, outsourcing can be better value (and more reliable). There is also the cost of potential penalties to consider; non-compliance fines associated with tax and employment laws can be expensive for organisations of all sizes. You can get an idea of how much you might be able to save by moving to outsourced payroll using Ciphr’s outsourced payroll calculator.

Looking for payroll outsourcing companies?

Speak to our team to get a clear understanding of how Ciphr’s outsourced payroll services can help your organisation reduce costs, save time, and provide unmatched peace of mind for you and your employees. We can help you decide on the best payroll service for your needs, regardless of your payroll size. Book a demo today, or contact us to discuss your needs.

This article was first published in January 2023. It was updated and republished in November 2024, for freshness, clarity, and accuracy.