Every member of the C-suite has a vested interest in ensuring payroll runs in a smooth, secure and efficient manner. For some organisations, the benefits of outsourcing payroll are compelling
For C-suite executives, payroll should be something that just happens, running seamlessly in the background without any hassle. But when things go wrong, it can become a serious headache for chief executive officers (CEOs), chief finance officers (CFOs), chief human resource officers (CHROs) and chief technology officers (CTOs) alike. They need to understand both how it will help the organisation operate smoothly, and the potential risks should it go wrong.
Julie Lally, managing director, payroll, at Ciphr, says there are essentially two options for organisations when it comes to payroll management: in-house (using payroll software) and outsourced payroll. There are also points in between these two, including integrated HR and payroll software or a bureau service.
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“You only need to pay somebody incorrectly or late once and they will lose all confidence in their employer
“You can run your payroll in-house with your own team, and they usually sit in finance or HR,” she says. “They will be experienced, educated and ideally CIPP[1]-qualified. There are great payroll practitioners out there, and there are lots of good payroll products in the market. If you’ve got a big payroll team, they’re happy, supported and you’ve given them the right technology and access to education and support, that's when in-house is a good option.”
But that won’t be the case in every organisation, and for those that don’t fit this criteria, UK outsourced payroll may be a better option.
The main reasons business leaders in the UK outsourced payroll
1. Outsourced payroll leaves no room for error
While the C-suite may not give too much thought to payroll services when all is working well, they’ll quickly be aware of it if things go wrong. And this does happen, says Lally. “People see payroll as an admin function but it is a very important part of every organisation. People only come to work because they have bills to pay,” she points out.
“The majority of the UK working population don’t have substantial savings and are just three pay days away from being homeless, so when pay is incorrect or late it has a big impact. Everyone in the C-suite should be interested in this because you’ve got a big cash investment in your people, in training them up and developing them, and they will walk [if their pay isn't right]. You only need to pay somebody incorrectly or late once and they will lose all confidence in their employer.”
“You only need to pay somebody incorrectly or late once and they will lose all confidence in their employer”
Unease over being paid correctly can have other impacts, too. “When you need to rely on your employees to go the extra mile for you – perhaps you’ve got a big order in with a tight deadline and you’re relying on goodwill and paying overtime – if you’ve got a reputation internally of not paying overtime on time, people will stop putting their hand up for it,” she warns. “They don’t want the hassle of having to chase being paid correctly.” A poor reputation in this area can also make it harder to recruit, she adds.
Conversely, paying people on time and accurately can lead to better employee morale, suggests Amanda Barnden, sales manager at Ciphr. “You’ll have better financial wellbeing and a happy, retained workforce, who are getting paid what they are entitled to, when they should be getting it,” she points out. “Some of the organisations that we work with, in sectors such as care or education, have quite high churn rates so keeping staff in roles is more challenging. The impact of paying somebody properly should never be underestimated when it comes to employee recruitment and retention.”
Need to know:
- An outsourced payroll provider will have significant expertise and tried and trusted processes to ensure your staff are paid correctly and on time, every time
- When outsourcing, the payroll cut-off date is typically closer to pay day so you have more time to get things right, including any overtime worked
- Payroll cycles include multiple review points for more control and less admin
2. People leave, including payroll teams: don’t risk losing critical knowledge
Even if you have an established payroll team, you could be more exposed than you think due to a lack of strength in depth and the risk of key people leaving.
“Organisations need to have three people who can run payroll,” says Lally. “You need the person who normally runs the payroll; the person who is responsible for them, whether that’s a finance manager or HR person who also knows how to run the payroll; and then you have what we call the times-three in the organisation’s shadows, who would be able to step in if needed.
“In the worst-case scenario – perhaps the payroll person goes off sick when the manager’s on holiday – that means there’s somebody else in the business who can run the payroll.” Even then, this will only work if there are clearly documented procedures set out in a user manual, so those who aren’t entirely familiar with the payroll process can find out how it works, she adds.
“Organisations need to have three people who can run payroll”
Another consideration is how stable the payroll team is. If the team is made up of people who might be looking to retire or move roles, that presents a significant risk, especially if the notice period is just one month. “If an organisation’s payroll is not large enough to warrant multiple people or if you have significant flight risk, then outsourcing is likely to be a better solution,” says Lally.
Need to know:
- An outsourced payroll provider will have repeatable processes that can be replicated across customers, meaning there won’t be any unknown quirks in the payroll process
- They will also have a team of trained people who can step in should the main contacts be on holiday or off sick
- They will ensure your payroll processes are fully documented
3. In-house payroll teams aren’t always as cost-effective as outsourced payroll
For most organisations, it will be more cost-effective to outsource payroll than to do it in-house.
Most of this will be due to staff savings, and the associated National Insurance, tax and pension costs that come with employing people. But there will also be savings from training and development, holiday and sick pay, and annual salary increases.
Another saving comes from not having to maintain BACS accreditation, which is required for organisations that pay staff themselves rather than using a bureau service. “You have to get your accreditation every three years and there’s a cost to that,” explains Lally. “But you must be audited as well. We estimate the audit process costs to be roughly £40,000 of internal human effort. If you’re only using BACS for payroll, that’s a big expense.”
Also, time will be freed up for members of the HR or finance team who no longer have to oversee the payroll operations. “It gives them space to think about how to reward and manage employees better if they're not bogged down in admin,” says Barnden.
Need to know:
- The cost per employee per transaction in an outsourced payroll relationship is often less than the cost of maintaining a dedicated team
- An outsourced payroll provider will be BACS accredited and fully audited
- Not having to run payroll gives your HR team more time to work on strategy
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4. Compliance can be an administrative nightmare
The burden of compliance that comes with payroll creates unnecessary headaches for the C-suite. Chief technical officers or data protection teams will have concerns around GDPR, and the ability of an in-house team to comply with onerous requirements around data security. It’s also worth checking where any payroll software provider stores your data, as sometimes this can be overseas. In the post-Brexit era, this is no longer advisable.
A UK outsourced payroll provider can take care of all your reporting requirements, including submitting information to HMRC and providing data to third parties, like unions or pension schemes. This will free up time for your HR team, and provide peace of mind that all relevant laws are being followed.
Need to know:
- An outsourced payroll provider will take care of all reporting requirements
- Data should be stored in a way that complies with GDPR requirements, and hosted in the UK
- Pensions auto-enrolment is set up to meet the needs of your scheme’s provider
5. Nothing beats direct access to payroll expertise from experienced UK-based professionals
It can be difficult to ensure your in-house team stay up to speed with the latest changes to the law or tax and reporting regimes. Inevitably, this means significant amounts of training — which takes people away from their day jobs — and cutting back on this risks failing to comply with rules or getting payroll wrong.
Choosing an outsourced payroll provider fixes this issue. “You’ll be guaranteed payroll experts because payroll bureau staff tend to be higher-trained payroll professionals than in-house payroll professionals,” says Lally. “Part of a payroll bureau’s budget goes towards annual training so staff are trained every single year. If it’s a good bureau, they would be members of the CIPP, which gives an added layer of quality.”
An outsourced provider will be able to spot and address any issues that exist around your data ahead of any move. Any changeover will involve extensive testing, followed by two parallel runs to ensure the payroll process is set up correctly before live implementation.
Need to know:
- Outsourced payroll providers will have access to the most knowledgeable staff with experience working across multiple customers and sectors
- An outsourced payroll provider will ensure its staff stay up to speed with any changes in the law or tax systems
- Payroll professionals in a reputable bureau will be members of the CIPP and come from HR and payroll backgrounds
Every member of the C-suite has a vested interest in making sure payroll operates efficiently, and that processes are kept secure. “The CEO and the CFO need to look to see if there’s a cost saving by outsourcing payroll,” says Lally. “CTOs have the burden of ensuring that the payroll data is secure and the CHRO needs to ensure that they’re looking after employees’ financial wellbeing by getting the payroll right every time.
“But the whole of the C-suite should care about payroll being done correctly, and doing the right thing by their employees. No one wants to lose good people.”
The benefits of outsourcing payroll to Ciphr
While outsourcing payroll makes sense for many organisations, not all providers are equal. Here’s why you should turn to us:
- We provide a first-class customer experience. We ensure that business leaders don’t have to worry about issues with paying their people
- We have an always-on contingency plan that we can fall back on. You don’t ever have to worry about employees not being paid on time
- We care about protecting your data. We invest in our IT security and infrastructure, and all our data is stored securely in the UK
- Every team member in our payroll bureau is a member of CIPP and undergoes regular training. And all our staff come from HR and payroll backgrounds – so they know firsthand what matters most
- We’ll act as a PAYE-registered agent office for all HMRC submissions. We’ll also submit reports to other parties such as pension providers, courts, unions or savings schemes
Why not reap the benefits of outsourcing payroll? To find out more about how we can become your trusted UK outsourced payroll provider, download our brochure or request a demo today.
[1] Chartered Institute of Payroll Professionals
This blog was originally published in April 2024. It was updated and republished in November 2024 for freshness and accuracy.