Colin Jackson: Payroll – do it yourself or outsource?

Colin Jackson

Paying staff accurately and on time every time requires a deep understanding of complex legislation and that, in turn, requires investment. For many organisations, the questions are: should that investment be in-house or is it cost-beneficial to outsource? Should all processes be outsourced or just some of them?

Before an employer takes the steps to outsource it needs to fully understand what its in-house function provides and think carefully about what it is it requires an outsource provider to provide. And, of course, there are pros and cons to both options.

With in-house payroll, having internal legislation expertise increases confidence of compliance, regular changes enhance the learning and development opportunities for payroll staff, and the organisation has total control of all aspects of payroll.

However, it requires ongoing investment in training to keep payroll staff up to date with legislative changes, while regular changes to legislation put additional pressure on the payroll team and can lead to additional costs. One example that has increased workload for payroll teams is automatic-enrolment, which may also result in a cost implication.

Outsourcing payroll can bring improvements in processing efficiency benefitting from wider experience of the provider, and it reduces the impact on the organisation of regular updates to software following changes to legislation. And payroll is a provider’s business focus so investment is made in ensuring that it is compliant, their business depends on it.

But reliance on the outsource provider to know what they are doing can lead to a lack of knowledge internally, despite the organisation still being ultimately responsible for compliance, and an employer may need to resource testing to suit the supplier’s timetable rather than its own. Furthermore, industry-specific requirements, for example, the construction industry scheme (CIS), may not be well understood by payroll operators.

Most outsource providers will provide a menu of services and an employer may choose, for example, to keep its payroll in-house but outsource automatic-enrolment administration because it feels that it does not have those specific skills in house. Whether an employer decides to outsource, do it themselves or share some aspects with a service provider, it must always remember that, ultimately, it is responsible for compliance, not the provider.

Colin Jackson is head of consultancy at the Chartered Institute of Payroll Professionals (CIPP)