With a reported 61% of SMEs in the UK now partially or fully outsourcing payroll, a question that many other businesses are considering is whether to continue to manage their payroll in-house or outsource it to a specialised payroll service provider.
With payroll being such a key function, we’ve put together this handy guide to breakdown the costs associated with running payroll in-house. This will allow you to compare the cost of running payroll in-house to the cost of outsourcing it to an external provider.
- Salary and benefits: The salary of the person responsible for running payroll is the biggest cost in the equation. In addition to salary, an employer must consider the on-costs associated with their employment such as employers NIC’s and mandatory pension contributions of a minimum of 3% of the employee’s salary, plus any other benefits such as healthcare, dental care, gym membership etc
- Recruitment and onboarding: Recruiting and onboarding payroll staff can be a complex and time-intensive process. If this activity is outsourced to a specialist recruitment consultant, fees can reach as much as 25-33% of the new employee’s first year annual salary. If recruitment is done in-house, it can take time and the focus of a senior member of the team away from their core responsibilities, plus incur time and cost for advertising, interviewing and onboarding. Recruitment fees and onboarding costs can quickly add up, impacting both time and finances.
- Training: Ensuring your payroll team is well-equipped to handle complex payroll tasks requires ongoing training. This involves the cost of training materials, external courses or professional memberships of organisations such as the Chartered Institute of Payroll Professionals (‘CIPP’), where training and continuing professional development is available as part of the membership. Regular training sessions are necessary to keep up with changes in payroll legislation and software. With over 170 pieces of legislation relating to payroll and benefits, training is an ongoing activity that must be factored into the costs of the payroll function.
- Hardware, software and cyber security licences: It’s likely that a new employee, irrespective of whether they work remotely or in an office, will need new equipment, software and licences to carry out their role. Protecting sensitive employee and financial data is paramount. Investing in cyber security software, regular updates and employee training to prevent payroll data breaches adds to the financial commitment of in-house payroll management.
- Parental leave, illness or absence: When a member of an in-house payroll team goes on leave, falls ill, or is absent for any reason, your business may need to hire temporary replacements or distribute the workload among existing employees. These solutions come with cost, such as recruitment fees or overtime payments. If re-directing existing personnel, there’s also the unseen cost of taking them away from their core responsibilities, which may have a financial or productivity impact on the business. During times of illness, absence or leave, the company must also ensure that submissions to HMRC are still made on time, otherwise the business runs the risk of fines or penalties.
- Payroll software: When running payroll in-house, it’s essential that your personnel have suitable software to run payroll. Investing in reliable and up-to-date payroll software is essential for accurate and efficient payroll processing. Costs include software licences, updates, hardware, maintenance and potential training for payroll staff to use the software effectively. It’s also necessary to have a robust, effective and tested Disaster Recovery Plan in the event of equipment failure, cyber attack or another uncontrollable event.
- Double entry: If in-house solutions aren’t fully integrated, payroll personnel need to enter data manually into the payroll system. This can add time and cost as well as increase the risk of input errors which can have a financial impact on both employees and the employer.
- Fines for non-compliance or failing to meet HMRC deadlines: Non-compliance with HMRC regulations or missing important deadlines can result in fines and penalties for the business. Ensuring that your in-house payroll team are consistently compliant with the most current legislative requirements is crucial to avoid potential financial setbacks as well as ensuring submissions are made on time. Employees are able to stay up to date with changes in legislation through paid professional memberships of organisations such as the CIPP with tiered membership fees.
- Scaling up: As the business grows, there may be a need for additional payroll staff to support the employees and the payroll function which incurs more cost for the business.
Running a company payroll in-house offers control and a level of customisation, but it comes with a range of associated costs that need to be carefully considered as it requires a substantial investment of both time and money.
As a small business, you might want to outsource your payroll to an accountant. Click here for pricing examples.
Outsourcing payroll to a third-party payroll company delivers a fixed cost per employee per month, allowing businesses to budget effectively and scale as the business grows.
If you’re considering outsourcing and would like to carry out a cost analysis, please contact us.
