What are the risks of payroll outsourcing?
Outsourcing your payroll, just like outsourcing anything in your business, does come with an element of risk. And not necessarily a fun kind of risk, like karaoke, blind dates, or opening a packet of ham that’s been in your fridge for a while.
That being said, a small amount of risk can lead to great rewards – whether that’s a streamlined payroll experience or a delicious sandwich.
We’ll walk you through the 7 most common perils of moving your payroll function from in-house to managed. By the end of this article, you’ll know how to minimise risk so you can open that packet of ham with gusto!
1. Onboarding pains
If the very idea of setting up with a new provider gives you a headache, we hear you. The time and effort it can take to set up your bespoke solution and transfer your data can be daunting.
However, you shouldn’t have to worry about this. After all, your payroll provider should be the one doing all the heavy lifting!
It can help to learn about the process of onboarding before signing a contract, and ensure your payroll provider knows your expectations when it comes to timings and how much (or little) you’d like to be involved. To make sure your first pay run goes smoothly, you can always start with a parallel pay run – this will make sure your figures match theirs before they take over for real.
2. Poor payroll quality
Let’s be honest: we trust ourselves a lot more than we trust other people. That’s why we like to keep things in-house, because we believe we can manage our payroll just as good, if not better, than anyone else. After all, if your provider makes a mistake, it’s still your payroll manager who has to deal with the passive aggressive conversations with Luke from marketing (chill your beans, Luke!)
However, outsourcing payroll is actually a much more consistent and quality way of processing payroll – who knew! Outsourcing payroll can help remove the single point of failure that often befalls even the most astute of in-house payroll teams every now and then. It’s time to overcome your trust issues and embrace your new payroll managers. Not physically of course, but you know, emotionally.
Still dubious? Just go on a trial run before you commit to a contract.
3. Lack of expertise within the team
As you know, managing payroll requires a detailed understanding of all aspects of payroll and HR. How do you know your new payroll provider is on top of processing, filings, statutory payments, P11Ds, Auto Enrolment, and sector-specific rules? Not to mention the various changes to legislation that could get you into trouble with the HMRC!
A good way to find out if your provider is in-the-know is to have a snoop on their website and social media. Knowledgeable providers will be sharing their insights all over town: you shouldn’t have to look far.
4. Losing the ability to deal with any issues right away
Hypothetically speaking, if an issue comes up, such as there’s a mistake on someone’s payslip, or a part-time worker has a dispute over their wage, then managing this in-house would seem quicker. If you work with a provider they might not pick up the phone, your email gets added to a support ticket queue, and you’re left in the lurch without any help. Meanwhile, you’ve 48 unanswered angry emails, Jerry’s quit, and the office is burning down. I mean, it’s a possibility.
To make sure this never happens, when you’re scouting for the right provider ask about their customer support system after onboarding. If they give you a dedicated account manager who you can call at any time, you won’t have to worry as you’ll be able to get timely one-to-one support when you need it. After all, you rather like Jerry.
5. Data security
Those dreaded four letters: is your provider GDPR compliant? Are they going to store and transfer your precious data safely?
The best way to reduce this risk is to train your employees on the best practises on GDPR compliance. It’s not everyone’s favourite topic but at least with this knowledge they can make sure your provider is tippity-top.
For example, employees must know any data sent to or from your organisation should be, at the bare minimum, password protected, and no personal or sensitive data should be shared without consent. Then, if your employees notice your provider not following compliance, strict action can – should – be taken.
6. Integration with HR
This risk is not so scary (you can come out from under the covers now) but we thought it was worth mentioning. You may realise after a while that you don’t just need to outsource your payroll, you also want support with HR, employee benefits, and other services too.
So make sure you’ve talked about the other needs of your HR and payroll team before you set up something with your provider – it could save you money and awkward conversations when you realise you need to change contracts later on.
7. Choosing the wrong payroll provider
What a lot of payroll managers fear is getting sucked in by an all-singing, all-dancing sales process, but then not getting what they were expecting when it comes to delivery. Like finding that your “luxury all-inclusive” holiday to Ibiza consists of soggy croissants and a pool that smells like a public toilet. Ultimately, the risks of outsourcing payroll come down to simply choosing a provider that doesn’t meet your payroll needs.
To avoid getting swept up in sales pitches or too-good-to-be-true deals, we recommend signing up or requesting to see a demo to see what the software you’ll be using looks like before you commit. Then build a strong case for which payroll provider you want to go with, so that you can convince your managers to sign off the decision.
Want to know more? Read all about the pros and cons of outsourcing payroll here.
