25 July 2022

In-house vs outsourced payroll: what’s the difference?

Paying your employees is imperative, but should you use in-house payroll software or an outsourced payroll provider? We weigh up the options

12 Minutes Read

Author

Rosie Nicholas

Rosie Nicholas

Rosie Nicholas is a freelance journalist and editor.

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Pay benefits and reward Payroll Technology

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Paying your employees is imperative, but should you use in-house payroll software or an outsourced payroll provider? We weigh up the options

One of the most crucial responsibilities of any organisation is making sure its people are paid accurately and on time. But while that may sound straightforward, there are many complications and hiccups along the way that you’ll need to handle to successfully complete every pay run.

From pay run to pay run, you’ll be coping with various adjustments in pay; some individuals might change their working hours, others may go on sabbatical, or family leave and therefore won’t be receiving their usual salary, and there are also freelancers and contractors to consider, particularly in relation to off-payroll working rules. And that’s all before you get to pension contributions, tax and other legislation with which you need to comply.

So your organisation needs a team that has in-depth knowledge of how payroll works, and what’s needed to stay compliant. The question is: do you build your own team of in-house experts, or do you outsource payroll to a specialist supplier?

The best option for your organisation will depend on your requirements, but each option has its advantages. Here we discuss the difference between in-house and outsourced payroll, the advantages of both options, and what you need to consider when deciding which is the best decision for your organisation.

 

In this article

 

In-house payroll vs. outsourced payroll: at a glance

In-house payroll is when your company has an internal department that deals with the payroll process for the organisation . These people are your employees, and are paid through the same payroll system that they manage.

In-house payroll staff will usually be in either your HR or finance departments. Their roles will include preparing and checking payroll data and performing the full calculation of the pay run.. The duties will also include making returns to outside bodies like HMRC, pensions providers and courts, as well as making payments and distributing pay advices. Having your own in-house payroll team means you’ve got the control and flexibility to make both any opportune changes and better decisions.

When you outsource payroll, your organisation hires another company to carry out its payroll functions . The solutions these firms provide will range from a basic service to taking on tasks such as liaising with HMRC and maintaining compliance with payroll and employment legislation and the full delivery of the payroll service. A great outsourced payroll service makes you feel the outsourcer is your own payroll team while reducing your costs and time. You can usually customise the level of outsourced payroll support that the supplier provides you with.

Whether outsourced payroll is a viable option for you will depend on the complexity of your organisation’s payroll requirements, and the expertise that’s available in your organisation. There will be some businesses where this choice will save them time and money, as you won’t need payroll staff nor the software packages required to carry out such tasks. You also won’t need to worry about keeping pace with the latest pay legislation.

 

Advantages of in-house payroll

So why might you want to keep your payroll in-house? For starters, you’ll have more control over payroll processes and their management . Your payroll staff can either adapt the processes you currently use, or they can help you develop a system that better suits your needs. And you can also resolve any issues that occur swiftly and easily, and make any required changes straight away.

You might also find it easier to complete the payroll process . Once your calculations are made in your reports, all you need to do is follow your payment steps. If you need to make any adjustments, these can be done off-cycle so you can address any issues and remit the correct total before the due date.

Having control of your payroll means you have easy access to your payroll history and information , too. If required, your trained accountants can check these details and identify any points that can help you reduce your payroll costs – and your tax liability.

The size of your company will also be an important factor in your decision. If you run a small- or medium-sized business, for example, then you may find your payroll needs can be fulfilled by a a member of the HR or finance team. For organisations with thousands of people, what you spend on payroll processing will be divided among a larger pool – lowering the per-employee cost, and making the decision to hire someone internally far easier.

If you decide to run your payroll in house, make sure you choose payroll software that supports your goals, fits with your organisation’s processes, and is integrated with your central HR system.

Advantages of outsourced payroll

If you always feel you haven’t got quite enough resource to complete all your payroll-related tasks, then payroll outsourcing may be for you – as saving time is one of its many benefits . The payroll bureau you use will calculate pay on your behalf, make any deductions, and keep on top of the latest tax legislation.

You’ll know you’ll always be compliant when it comes to your payroll data and information. And, not only will you have an easy-to-use payroll service, but you may have access to a range of additional solutions, too, which will boost your business efficiency further, for example P11d reporting of benefits to HMRC at tax-year end.

Remaining compliant with current legislation can be a daunting task for small- and medium-sized businesses , and your payroll service will need to have an in-depth understanding of these payroll rules (plus those that apply to employment, tax and other areas). So outsourcing payroll to a service provider means you can delegate such tasks to a supplier that has knowledge of these complex rules – and can help you avoid any penalties and audits that could be prompted by your non-compliance. Such companies will also support you in getting a greater understanding of payroll legislation.

Working with an outsourced payroll specialists also gives you instant access to payroll experts with years of experience, should you need extra support with complex situations.

And, because they’re experts, the risk of any omissions, errors or late submissions of payroll tax submissions are low . When searching for suppliers, you’ll need to ensure they have a good reputation and use HMRC-recognised software.

Another benefit of choosing to outsource your payroll is you don’t need to worry about recruiting, training and retraining staff with these skills. You won’t have any concerns over staff absences, either, as there will always be someone available to deliver your payroll.

As you’ve got a supplier dealing with this process, you won’t need to buy or maintain your own payroll system because this will be done on your behalf. Many payroll outsourcing firms, such as Ciphr, have their own payroll software – so that’s another decision-making process you won’t have to undertake. Your outsourced supplier may also provide online platforms for the submission of data and an employee self-service portal for payslips, P60s and other documentation.

So what do you do with all this extra time and money you’ve got now you’ve outsourced payroll? This gives your HR team the time to focus on strategic goals such as improving your employee experience, and supporting staff’s learning and development.

If you decide to use outsourced payroll services , then it’s essential the option you choose is an HMRC-recognised, Microsoft tested, ISO 9001 and ISO 27001 certified supplier – such as Ciphr Payroll.

 

As you search for the best payroll software for your business, you’ll need to consider several of factors before you make your selection. Security is likely to be a top priority, because payroll data includes some of your organisation’s most sensitive information, such bank account details and salaries Ensure your cloud provider has sufficient resilience in its service to ensure there will be little or no down time and robust business continuity.

Easily integrating payroll software with your other business systems will be another point to consider, whether you outsource your payroll or not. That’s because payroll depends on data, much of which might be drawn from your central HR system. Opting for payroll software (such as Ciphr Payroll) that integrates with your HR software – whether they’re provided by the same vendor or not – will help to speed up your pay runs, make them more accurate, and make the whole process more secure. Your payroll software supplier should be able to support integrations using API connectivity to enable safe and seamless sharing of data at application level. Payroll data will typically come from time and attendance systems, timesheets, pension providers, HMRC and a range of other outside bodies. The collation of this data, its interpretation, and the making of correct payments and deductions is dependent on good automation of processes and calculation routines built into your systems.

Make sure your supplier can also provide good customer service and support. Select a company that invests in training customer care colleagues, who will then have better problem-solving and communication skills. Your provider should also offer training on how to use this payroll software, particularly when there are significant changes like tax-year end and legislative changes. Ciphr Payroll, for example, has a dedicated team of qualified payroll professionals and account managers, who can help you resolve any problems you may encounter quickly and with minimal fuss.

 

Outsourced payroll services from Ciphr you can rely on

If you’ve decided to use payroll outsourcing services, then you’ll need a supplier on whom you can rely to pay your employees on time, with the correct salary, and will keep all this information secure. Ciphr can do that – and more – for your organisation.

Not only can we help you to better comply with any legislative changes , but our systems and processes are also ISO 27001 certified –which will give you peace of mind about the security of your data, and your employees’ information. Outsourcing payroll to Ciphr can help you save money through better compliance (and, therefore, fewer penalties), meaning your cost per employee per transaction can be less than the cost of a dedicated in-house payroll resource.

Working with Ciphr Payroll might mean you can schedule your payroll cut-off date closer to pay day, which means you’ll have more time to verify changes that have occurred since the previous pay day. This will improve the accuracy of your pay run, which of course means there’ll be fewer issues that may arise. You can introduce multiple review points into your payroll cycles, too, which will give you control without having more administration work. Your payroll partner should be a Bacs-approved bureau to allow them to handle pay transactions on your behalf – not only paying employees, but also HMRC and third parties on your behalf.

There’s more good news for your employees’ pensions. Your organisation’s pensions administration will be supported, whether you have contractual joining or have an auto-enrolment scheme. The processes will be fully automated, and will also be configured so it meets the needs of your provider in terms of the reports and files needed at the end of the payroll cycle.

With all these factors working together, using outsourced payroll services from Ciphr will mean your HR team has more time available to them because managing payroll administration won’t be as significant a part of their job role. This increases your capacity to work on crucial strategic projects that will create a benefit to the wider organisation – and your people.

Choosing to run payroll in-house or outsource it is very much an individual decision for your organisation; there are several advantages to each option.

If you want to find out how Ciphr can support your payroll – through our software, Ciphr Payroll, or our outsourced payroll bureau – book a demonstration now or download our brochure to find out more about how we can help.