Outsourcing your payroll function: A guide for SMEs

Despite being the second most outsourced function for businesses in the UK, many SMEs still aren’t reaping the benefits of outsourcing their payroll. 

A 2019 Yougov survey found 28% of companies use another business to manage their employees salaries and wages, with IT services taking the top spot. Even so, 28% is hardly a high number, especially when you consider the benefits of outsourcing this key business function. 

In this article we’ll take a look at these important questions, and share the following advice: 

What is payroll outsourcing? 

Payroll outsourcing is the act of hiring an external company or individual to manage the payment of your staff. 

The level of service carried out can vary. The most basic arrangements may simply cover the act of processing employee remuneration (including salary, wages and employee benefits payments), while a full service would also include liaising with HMRC and managing compliance. 

This service is typically carried out by an accounting or bookkeeping firm. 

Why do SMEs choose NOT to outsource their payroll? 

Understandably, some SME directors and owners may be reluctant to give up control of such an important function of their operation. Paying your people promptly and without error is vital to the company’s success, especially if you have a small team. 

It’s also true that accounting software like Xero have made the job easier and more cost effective. Many companies will be tempted into keeping the job in house, due to the perception the software allows them to cut costs. 

However, we would argue that the benefits of outsourcing are far greater in number, and that keeping the function in-house as you grow can result in mistakes that could cost the business further down the line. 

What are the benefits of outsourcing payroll? 

Tips for finding a payroll service provider

First, we’d recommend finding a payroll service provider that provides the following services, on top of the core services we described earlier: 

Most accounting firms will include payroll management services as part of a complete package of accounting. We’d recommend finding such a trusted partner, that can keep your businesses finances and reporting under one roof. Read this article for a full breakdown of the process of outsourcing your accounting.

It’s also important to find the right cultural, financial and organisational fit for your business. This includes:

As always with these core business admin tasks, your time as a founder or director can be better spent chasing sales or updating your marketing strategy. 

Free your SME from unnecessary admin, and start saving money by outsourcing your payroll function today. 

To find out how Pennyhills can become your trusted payroll partner, get in touch today.