With multiple payroll outsourcing companies to choose from, finding the right one is not easy. Our 10 tips will help steer you in the right direction
There are many payroll outsourcing companies on the market, which can make it a difficult decision when it comes to selecting the right one, so it’s important to do your research. Once you’ve taken the decision to outsource your payroll requirements, there are several factors to take into account when choosing a provider, including some that may not be immediately obvious.
Here, we’ve outlined 10 things to consider when making that all-important decision around UK outsourced payroll companies.
1. Be clear about the services you require
Identify what it is you need, and then make sure these are provided by the payroll outsourcing company. As well as payroll processing, it’s important to establish that the provider is a BACS1-approved bureau, meaning it’s able to make payments to employees or HMRC on your behalf without the need for any funds to be transferred over. Any provider that has this accreditation will have undergone stringent security checks, so you can be more confident you are having your payroll outsourced by a reputable payroll outsourcing company.
Payroll outsourcing companies should also be able to offer extra services such as pensions administration, P11d reporting of benefits to HMRC at year-end, and P45/P60 production.
2. Make sure providers can handle your compliance needs
It’s essential any outsourcing payroll service providers can ensure compliance with HRMC requirements and other legislation. Find out whether any potential payroll outsourcing companies can act as agents for HRMC, which will allow them to deal directly with this body on your behalf. This also means they will be able to receive tax notices such as tax code changes.
There are other areas with which organisations – and therefore outsourced payroll companies – must comply, including auto-enrolment pensions requirements and holiday pay regulations. These are both rapidly changing areas, so knowing the provider has the expertise to handle these and stay on top of new requirements – and take away the headache from you – is vital. Legislation can also affect particular industries, so it’s a good idea to make sure any provider has experience in your sector.
3. Ensure the security credentials stack up
Having the right security measures is essential, otherwise, you could find yourself exposed to a serious data breach and even face legal action under GDPR regulations.
The main standard any outsourced payroll company you’re considering using should have is ISO 27001 accreditation, but you should also ask questions about what security measures they have in place, particularly around sensitive personal and financial information. Ask them if the data is stored in the UK, how they would handle a data breach, and whether one has ever occurred.
More generally, find out what business continuity measures are in place to ensure the service can still function in the event of an unexpected interruption, such as a fire or flood. Any reputable provider will have a tried and tested business continuity plan, so ask about this, and make sure it’s regularly updated.
Finally, find out the size of the company, and look into its financial health. While small companies can deliver excellent service, it’s important to check any provider would have the people and financial resources to deliver the service levels you require. Annual accounts will help with this, and can be found at Companies House.
4. Make sure the provider can be flexible
If you’re considering outsourcing payroll, find out when the provider will need to receive requests from your HR or payroll team in order to process the next payment run. It’s also important, though, to ensure they are flexible enough to be able to make any amends to this, factoring in new joiners or leavers, for instance. Other last-minute emergency situations will inevitably occur, so it’s worth asking how they might cope with these.
If you know you have unusual requirements, find out if it’s possible to get a customised package based on your precise needs.
5. Assess the provider’s reputation in the market
Once you’ve narrowed down your search to a shortlist, it’s worth carrying out some due diligence on the provider, and the people behind it. Most outsourcing payroll companies will have testimonials on their websites, but you can also read online reviews and look on social media for anything which might suggest there are issues with service delivery or customer service.
Find out, too, when the business was established, and what the business record is of the people behind it. If there’s a record of failed or liquidated firms, it’s probably one to avoid.
6. Find out the true cost of any arrangement
Cost is always an important part of any outsourcing decision but it can be hard to get a clear picture of just what this will be. Most outsourced payroll companies will charge on a per-payslip basis, but it’s not uncommon for some providers to charge extra for some services such as tax-year-end processes, P45 distribution or P60 production, or extra reporting – so you’ll need to factor this into any assessment of the overall cost.
Some providers will even charge for new starters or leavers, so what can look like an attractive price soon becomes less so on closer inspection. Another issue to consider is the exporting of data from another supplier if you’re moving providers, which can also incur additional charges.
Ask for a full breakdown of what you’ll be paying for the service, and check this includes everything you require. If possible, push for a fixed, all-inclusive price so you know what you will be paying each month.
Want to find out if Ciphr outsourced payroll adds up for your organisation? Check out our free outsourced payroll calculator
7. Make sure any provider can scale up or down with you
It’s a good idea to find out the potential for any outsourced payroll provider to cope if your requirements dramatically ramp up. While a significant increase in employees would lead to extra costs, it’s worth making sure the provider would be able to accommodate this, and indeed has the necessary resources to do so. Ask what size of company a provider typically works with, as if these are all small operations while you know you’re likely to grow rapidly, there could be capability or capacity issues.
Many businesses grow through acquisition or merger, which can mean thousands of new joiners coming onboard in one fell swoop, potentially through TUPE transfers. This could see different levels of pension provision or holiday and sickness pay having to be accommodated. You’ll need to work out whether a provider can undertake multi-company processing – including cross-company reporting – or perform bulk operations for large groups of employees if these are to be brought into the main payroll system.
It’s also worth finding out what will happen if your employee numbers fall, due to headcount reductions or the sale of part of the business, as most payroll outsourcing companies will price contracts based on certain numbers of staff.
8. Check communication processes and customer support provision
In any outsourced relationship, it’s essential that you know you will get the support you require, and that someone is there to help should something go wrong.
One thing to ask here is whether you’ll get a dedicated customer success executive or payroll administrator you can contact, so you’re not left ringing helplines or call centres. This person should know your account and be able to resolve any issues, including proactively contacting you should they identify any issues. This is particularly important during the onboarding process, when additional information may be required. Find out, too, what out-of-hours support is available, as this could be required by businesses that operate across different time zones.
It’s also important that a provider keeps you informed of any upcoming changes around software or regulation, so you can ensure you’re on top of this and know about anything that may need to happen your end. Ask what sources of support they have, including any webinars or sessions, to help you and your team stay informed. Find out, too, what they won’t be able to help with; tax advice, for example, will likely be off-limits, so it’s important to clarify boundaries.
Check, too, that the provider will handle communications with third parties, such as HMRC or pensions providers, on your behalf. This can be a time-consuming process for in-house teams so being able to pass this over to an outsourced payroll provider is a definite advantage.
9. Ensure software can integrate with other systems
This is an important consideration, and one that is easy to overlook. Any outsourced payroll system should be able to integrate with your chosen existing HR system to ensure seamless transfer of information, so providers can receive a single source of accurate data. This will avoid the need for manual intervention and spreadsheets, and significantly reduce the potential for errors.
Learn more about HRIS payroll software
Employees, meanwhile, should be able to download their online payslips through the company HR system, avoiding the need for them to be emailed, while HR teams should be able to access information from the payroll package for their own use. Finance teams, too, will need systems to integrate with accounting packages, so they can pull information across for reporting purposes and to analyse pay data.
It’s also important to check that outsourced payroll packages can integrate with other systems, such as pension payroll software and time-and-attendance systems, to ensure accurate recording of hours worked. Systems should also integrate with HMRC, so all the necessary information can be supplied on behalf of employees and the business.
10. Insist on relevant testimonials and speak to existing customers
As well as delving into the company’s reputation, ask if you can speak to existing customers directly, to find out their experiences of working with the provider. Ideally you would speak to two companies; a long-standing customer that can talk about customer service and the ongoing relationship, and a recently onboarded client who can tell you about that experience specifically. If possible, at least one of these would ideally be from a business of a similar size to your own.
If a potential provider isn’t able to put you in touch with customers – or it takes a long time to find someone willing to talk – it should ring alarm bells.
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Once you’ve decided it makes sense to outsource your payroll, finding the right outsourcing payroll provider is the next stage. And it’s no easy task; there are dozens of companies and each one will naturally paint themselves in the best light.
Taking the time to do your homework – and asking some of the questions contained here – can help ensure you make the right call; one that will deliver the best solution and customer service levels for your business, and lead to a long and productive relationship.
To find out more about how Ciphr can help your business manage its payroll needs, download our brochure or book a time to speak with one of our experts.
Additional reading: Roundup of payroll changes 2024/25: everything you need to know
This article was first published in November 2023. It was republished in November 2024 for freshness, clarity, and accuracy.