Guide

Payroll software

Advantages and disadvantages of outsourcing your payroll

Managing payroll services in-house often requires an individual, or a team, with a thorough knowledge of the PAYE tax system. If your business doesn't have these skills in-house, you can organise your payroll by outsourcing it.

What is payroll process outsourcing?

Payroll outsourcing involves hiring an external company or an individual to handle all payroll functions. The level of services you can outsource varies. Some suppliers provide a basic service; others provide the full package including liaising with the HMRC and maintaining full compliance so your business never has to deal with payroll.

Typically, businesses outsource payroll to:

  • an accountant or bookkeeper
  • a specialist payroll company

If you're considering outsourcing payroll to someone else, you should weigh up the pros and cons.

Advantages of outsourcing payroll

Attending to payroll demands a great deal of time and expertise. Outsourcing your payroll to a specialist can help:

  • free up precious time to focus on your core business
  • reduce the need for training in-house payroll staff
  • remove the expense of buying and maintaining a costly payroll system
  • minimise the chance for errors, omissions or late payroll tax filings
  • stay compliant with your tax obligations and PAYE responsibilities

As with all outsourcing, you should balance the advantages against the potential pitfalls – in this case the financial costs and the risk of communication errors, particularly for complex payrolls.

Whether payroll outsourcing will be cost-effective for your business depends on the complexity of your payroll requirements.

Disadvantages of outsourcing payroll

Costs of outsourcing payroll can be high, especially for a young business. There is a certain degree of risk if communication lapses – for example, if you don't advise the payroll specialist of a staff member starting or leaving.

Outsourcing will also mean losing control of some of the key elements of your business, eg:

  • you may not have instant access to payroll if it has been outsourced
  • you won't always be able to check it when you want to, or add anything that's missing
  • you will have to hand over confidential and sensitive staff information

Read more on outsourcing and, more specifically, the advantages and disadvantages of outsourcing.