Payroll management has always been a headache for HR leaders, but in recent years, the headache has become a migraine. Hybrid and remote work practices are now the norm, but they make payroll calculations more complex. The compliance burden keeps rising, and Brexit left UK employers with a bigger burden when working with EU-based employees.
Meanwhile, global inflation has increased the pressure on HR teams to send paycheques on time, and to limit delays in paying for overtime. Research by MHR found that 25% of workers who were paid late couldn’t pay vital bills as a result, and 30% had to borrow money to fill the gap.
On top of that, the talent shortage continues. Gartner found that 50% of HR leaders predict talent competition will increase over the next six months, and Leathwaite’s HR survey revealed that job hunters are prioritising opportunities that promise reassurance, stability, and greater transparency. All of which makes it more important to differentiate your company by guaranteeing smooth, trusted, and fast monthly salary payments.
All this is taking place against a backdrop of HR professionals who are overwhelmed, in or close to burnout, and need all the help they can get. It’s no surprise that many of them are choosing to outsource payroll and relieve themselves from this demanding, time-consuming task. But there are considerations to bear in mind before you take this leap, no matter how frazzled your HR team may be.
The cost of managing payroll in-house
Cost is always a top concern. It can be expensive to train employees to efficiently manage payroll in-house. They need to enter and track data accurately, calculate complicated tax and pensions obligations, and comply with all regulations.
Then there’s the potential cost of mistakes. Companies that make incorrect submissions to HMRC and PAYE systems and fail to enrol eligible employees in pension schemes can face swingeing fines. MHR reports that UK businesses are losing up to £150,000 a year due to payroll errors.
Outsourcing can seem cost-effective in comparison, especially if the payroll bureau you work with can protect you from penalties. However, sometimes outsourcing can add up to a lot more than you’d expect. Once you add on extra services, the price could be more than you’d spend on training.
An alternative is a low-cost, automated platform like Pento. Pento can pull data from your human resources information system and other integrated platforms to automate data entry, lowering the risk of errors. It can also automate the issuing of payments to employees and reports to governmental agencies. The app is easy to use, slashing the cost of training employees, and a subscription includes access to a dedicated support team of certified payroll experts.
The value of retaining payroll control
Outsourcing payroll could free you to focus on core competencies, but that should be balanced against loss of control. You’ll have little to no visibility or say over this side of your business, which could end up undermining your company culture and values.
Outsourcing also deprives you of some measure of agility, since it’s difficult to make changes to compensation formulas or timing when you’re bound to someone else’s workflows.
You’ll also lose visibility into real-time quality payroll data, which can be extremely valuable for other aspects of HR decision-making. Given that Gartner found 53% of HR leaders are focusing on organisational design and change management, it’s likely that you’ll need the insights that payroll data can reveal.
The challenge of ensuring compliance
Payroll data is highly sensitive, encompassing personal identifying information, financial details, and other important data points. HR teams have to comply with data privacy and data security regulations, and in our global economy, a UK company is likely to have to comply with GDPR and other regional regulations despite Brexit.
Global outsourcing payroll platforms like Deel can help with this hassle. They offer strong protections to secure all their clients’ data. But outsourcing inevitably increases vulnerability to data breaches, simply because employee data passes through more hands. There’s a lot of back and forth involved, and every query asked or answered carries a risk of hacking or exposure.
Additionally, global payroll management services are often weak when it comes to UK requirements. Deel is one of many platforms that’s not UK-compliant. This leaves you to tie off loose ends in-house, which obviates many of the benefits of outsourcing.
The time that payroll management can absorb
Payroll management is an undeniable time-suck, with employers wasting over 100 hours each year on manual payroll processes, according to the MHR report. You need to check data at every step, verify payee identity and amounts, confirm pension contributions and tax reporting, and more.
Outsourced payroll service agencies might speed this up with their expertise, but the time spent sending data back and forth can wipe out that gain. Automated platforms for in-house use like Pento can save time on payroll management, without adding on time for sending data.
Keeping payroll processes within the company can save time in other ways. Your payroll teams know the business, your employees, and their work practices and schedules. They are less likely to hit uncertainties that they can’t answer and have to put everything on pause while they wait for a response.
The difficulties of accurate payroll management
Accuracy is crucial for payroll management, especially given the risk of fines for incorrect tax reporting and pensions enrolment. But MHR found that 72% of companies still use manual processes for payroll.
Manual data entry carries a high risk of errors, and a whopping 91% of British and Irish businesses admit to mistakes every month.
Payroll bureau service agencies can automate more of the processes, but they still rely on your data collection and preparation. If those processes are manual, the same errors will creep in. To address this, it’s important to integrate tools like Xero into your payroll workflows, to aggregate employee personal details, work hours data, vacation time, bonuses, benefits, and so forth.
The importance of employee satisfaction for payroll
As mentioned above, inflation has forced more people than ever to live paycheque to paycheque, so they are hyper-vigilant about compensation. They rely on receiving full compensation for all the hours worked in the past month, rather than having payments carried over to the next month.
Unfortunately, outsourced payroll companies usually require longer lead times to process payroll data, and several days in advance is not uncommon. Longer lead times raise the risks that employees won’t be paid correctly, or won’t be paid for overtime until a month or two later.
In-house automated payroll management has a much shorter lead time, which ensures employees are paid promptly for time worked.
It’s equally important for your employees to trust whoever is managing their payroll data and calculations. They need someone to turn to if they are unhappy with their paycheque or have questions about compensation. Outsourcing payroll places unnecessary obstacles in their path, and employees might grow irritated at the lack of response.
Outsourcing payroll can be a close call to make
Payroll management is tough, the risks of mistakes are high, and the potential consequences can be serious. Outsourcing might seem like an easy way to mitigate those risks, but they don’t always do enough to resolve them. In-house payroll automation tools remove risks of manual error, speed up payroll workflows, and streamline processes, all without losing control over payroll or raising employee anxiety.
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