Outsourcing payroll: The savvy choice for business owners Payroll. It’s a necessity for any business that employs staff, and whether pay is processed weekly, fortnightly or monthly, it can present a huge administrative burden. Not only can it take considerable amounts of time to calculate everyone’s pay accurately, there are all sorts of pieces of employment law to adhere to when determining who should be paid how much, and when. In this white paper, Outsourcing payroll: The savvy choice for business owners, we consider the need for accurate payroll and how an external provider could be just the ticket to making sure everything is processed correctly. Understanding employers’ obligations
Employers have certain legal obligations towards their staff when it comes to calculating payroll.
HMRC advises that every time a member of staff is paid, an employer is required to: Keep a record of their pay, including their salary, wages and any other payments. Calculate deductions, such as tax and National Insurance. Calculate the employer’s National Insurance contribution that needs to be paid on their earnings (if these earnings exceed £166 a week). Generate a payslip for each employee. Report their pay and deductions to HMRC – this is done through a Full Payment Submission (FPS).
Employees need to be paid accurately and on time. Many businesses use payroll software to help make the process easier, but regardless of the amount of staff they have, this is still a task that will take hours to complete.
Payroll administration requires time, accuracy and expertise – and it is not a job that can be taken lightly.
The challenges associated with payroll
As with any administrative task, there are all sorts of challenges linked to payroll, ranging from the need for legal compliance, to the time and cost pressures imposed on a business.
Payroll isn’t just about making sure people are paid on time; there are all sorts of legal implications to consider. These might include whether an employee is entitled to sick leave for the time they have had off, or perhaps compassionate leave in extenuating circumstances.
Leave entitlements will vary from employee to employee depending on their contract. A company is
legally obliged to make sure it processes pay legally and accurately. They are also required by law to: Give employers with an itemised pay statement. Meet the National Minimum Wage (NMW) law. Only make lawful deductions from wages. Meet statutory payments in relation to sick pay, maternity, paternity and shared parental pay etc.
Staff rightly expect their employer to pay them the right amount, and on the recurring date specified on their contract. After all, money matters. An Aviva survey showed that
41% of people chose their current role based on its salary, while 38% were drawn to their job because it offers paid sick leave and/or critical illness cover.
Employment legislation is changing all the time, so unless a company is willing to invest in the ongoing professional development of its staff, it could be better to leave the intricacies of payroll to an external company.
Even the fundamentals of employment law can change from year to year. For example, the
NMW is reviewed annually and will need to be factored into any company’s payroll. The government has clamped down on businesses that do not meet NMW requirements, imposing fines of up to £20,000 per worker for employers found to have broken the law.
It is therefore in a company’s best interests to streamline and simplify the process of paying its staff, not least for the benefit of morale and, of course, keeping on the right side of the law.
Having staff on payroll can be an administrative minefield. Apart from the usual processes that have already been outlined, employers also need to make sure they keep track of any ‘out of the ordinary’ payments.
HMRC advises that these may include: bonuses and commission holiday pay (unless it’s paid advance or through a holiday pay scheme) payments for time an employee has spent travelling passenger payments, minus the first five pence per mile medical suspension payments, which are given to an employee who has been suspended for health reasons maternity suspension payments, given to an employee who has been suspended for the sake of her, or her baby’s, health guarantee payments, paid to an employee for a day they do not work (and not paid holiday) office holders’ payments given to employees for providing a service, for example being a company’s sports-club secretary payments that can be converted into cash, for example cheques, Savings Certificates or Premium Bonds inducement payments cash prizes won in company-run competitions
Within a company, any number of different pay scenarios could arise. For example, a handful of employees might have their pay processed as usual, another group might be entitled to a bonus, while a select few may be in receipt of payments for the time they’ve spent travelling.
Keeping track of exactly who is owed what and when is no easy feat. Bearing in mind how crucial it is to get these payments correct, there is a real business case for enlisting the help of an external provider.
Knowing there is someone who can deal with issues as they arise – and whose time is solely committed to making sure it is done properly – can be a major coup for a business. Payroll takes hours to complete, and for businesses that process wages on a frequent basis, it is time that needs to be set aside.
A Sage study found that small and medium-sized businesses across the UK
waste an average of 120 hours per year on administrative tasks – time that could be spent elsewhere. This lost productivity also has an impact on the national economy; in fact, the study estimates that increasing productivity by just 5.6% could lead to an £33.9 billion a year increase in GDP.
Then there’s the cost to consider. Employing someone with the experience to process payroll comes as an expense to any sized business. A considerable number of man hours are allocated every week to keeping track of employees’ pay and although tools are available to make this easier, taking shortcuts isn’t an option.
average salary of a payroll administrator is estimated at around £25,000, which is money that could be allocated to outsourcing the task. The external provider will be tasked with calculating employees’ individual pay, taking into account any leave or other payments they may have accrued.
This means less time spent making sure employment records are up to date, freeing up hours that can be allocated to other areas of a business.
Payroll errors can be a huge administrative issue for businesses. In the event a mistake has been made, employers will need to update the year-to-date figures in their next regular FPS. Alternatively, they can send an additional FPS before the next regular statement is due.
Problems can also arise with employees’ National Insurance (NI) deductions. A similar process as that outlined above can be followed; however, in the event that the deduction was too little, an
employer cannot recover more than the NI contribution that was due to be made that month. The remaining amount will need to be recovered during another month.
Imagine this scenario arising regularly, and how long it will take to rectify the situation. Having an expert on side who can avoid these situations in the first place is preferable. It is much easier to make sure the correct payment is made from the outset to avoid spending hours putting it right.
A case for outsourcing payroll
Outsourcing is far from a new concept – and that’s because it works. Companies are keen to enlist the help of an external expert in areas where it will save them time and money, and payroll is no exception.
Deloitte’s 2016 Global Outsourcing Survey found that 53% of businesses outsource their tax affairs, while 47% rely on an external company to deal with HR issues. These figures mark an increase of 17% and 32% respectively.
Entrusting a third party to deal with payroll can alleviate administrative strain, while also freeing up time across a business. This is the case for a company of any size; whether a business has just a handful of employees or hundreds of people to pay each month, outsourcing can be cost effective and efficient.
Staying on the right side of the law
Not all payroll providers are created equal, which is why it’s important to find a company that will not only process payments effectively, but also in a way that is legally compliant.
One of the key criteria to look for is ISO 27001 certification. This accreditation is awarded to organisations who keep their information assets secure, which encompasses financial information and employee details – two key components of any payroll.
General Data Protection Regulations came into force in May 2019 and place another layer of legislation on businesses who process information. Any company found to be in breach of these laws can face a fine of up to 10 million euros, or 2% of their annual profits from the previous financial year, whichever is greater.
It is a company’s duty to make sure any firm they outsource tasks to meets these standards. Choosing a reputable provider with a proven track record is essential, but looking at the specifics of their offering could be the difference between meeting and falling foul of the law.
At a time when businesses are more environmentally aware than ever, it could be worth finding a payroll company that favours electronic payslips over paper copies.
CitySprint Collaborate UK 2018 report highlights that sustainability is becoming increasingly important for small and medium-sized businesses. Over three-quarters (78%) of those questioned said they believe sustainable and environmentally-friendly processes are important, while 57% highlighted that reducing and recycling waste was a top priority.
Taking steps towards a paperless payroll is an easy way of making a more environmentally-friendly future a reality.
Digital payslips also help a company and its employees keep their details secure; it is also a much simpler way of recalling past payslips should they ever be needed. Each employee is given a log in to an online portal where they can find all their past payment records and any other key information relating to their payroll.
Choose ELAS for your outsourced payroll solution
There are thousands of
outsourced payroll companies out there, so how do you choose a provider that will not only meet your needs, but also be legally compliant?
ELAS can process your payroll as frequently as you require and you can preview your reports online before they are set live. The online portal also gives you and your employees access to payslips, P60s, reports and any other information. We also offer a customisable reporting function that’s tailored to your requirements.
We take measures to comply with GDPR and our ISO 27001 certification gives an extra layer of reassurance that we are meeting all the necessary data protection legislation. Our service is backed by our team of employment law experts, so you can be safe in the knowledge your payroll is processed accurately and legally.
ELAS also offers a simple pricing structure, which makes it an affordable option regardless of the size of your business. If your company has fewer than 10 members of staff, we charge £25 per month, and £2.50 per payslip thereafter. So, even if you have 100 employees, you will only be paying £225 per month.
To find out more about outsourced payroll and the many benefits it can bring to your business, give our experts a call on 08450 50 40 60 to discuss your specific needs.