Guide to UK outsourced managed payroll services
The popularity of outsourced payroll services, both fully and part managed solutions, has grown significantly in recent years. This guide provides an overview of UK managed payroll services, compares the different options available in the market and will help you decide which is the right managed payroll service for your business.
Managing a successful in-house payroll function requires a focus on data accuracy, well organised payroll processes together with a detailed, up to date knowledge of payroll legislation.
However, in recent years, even well organised payroll functions have come under strain from the introduction of new UK legislation including Real Time Information (RTI), workplace pension auto enrolment and GDPR, all of which has increased the compliance burden on businesses and the complexity of payroll processing.
At the same time outsourcing has become increasingly popular among British businesses, broadband penetration has increased rapidly and there have been significant developments in cloud technology.
All of these trends have led to innovation in the payroll industry and the rapid growth in popularity for outsourced managed payroll systems with a recent YouGov survey reporting that payroll processing is the second most frequently outsourced function among UK businesses.
In this article we will discuss the benefits of outsourced managed payroll services, compare the options available in the UK market and assist you in deciding on the right managed payroll service for your business.
Outsourced payroll services are complicated and use a huge range of technical terminology. So to help you understand the acronyms and jargon used in the industry, we have provided a glossary of payroll terms to read alongside our payroll services articles.
In this article
What are outsourced payroll services?
Outsourcing your business’s payroll processing involves you giving control of, and responsibility for, running your business’ payroll to a third-party payroll service supplier which operates specifically to manage payroll processing for its business clients.
You can decide to outsource all of your business’s payroll processes to a payroll service supplier (e.g. all payment and tax calculations, document creation, HMRC filings, payments and record keeping) or to retain some activities in-house within your business (e.g. making employee payment and tax calculations) and outsource the rest.
Depending on the extent of the payroll processes that you choose to outsource your business may not need any in-house payroll personnel at all.
However, you should be aware that the legal liability for making HMRC payments and filings will always remain with your business even if you fully outsource your payroll processes.
HMRC recognised payroll software
HMRC tests software used by outsourced payroll service suppliers to ensure that it can report PAYE information online and in real time (RTI). Payroll software that passes HMRC’s tests is added to its recognised software list. However, HMRC will not recommend one payroll software supplier over another.
Checking that the outsourced payroll service that you select is recognised by HMRC should provide comfort that it complies with the HRMC’s payroll guidelines.
The list of all HMRC recognised paid-for payroll software can be found at https://www.gov.uk/payroll-software/paid-for-software.
Outsourced managed payroll options
Outsourced managed payroll services can be accessed in a number of ways:
- Fully managed payroll service: A business outsources all of its payroll processing to the managed payroll service supplier.
- Part managed payroll service: A business agrees with the payroll service supplier which payroll processes it wishes to outsource.
- Accountancy practices: Many accountancy practices offer a payroll service to their clients alongside their core tax and accounting services.
- Bureau payroll service: The term payroll ‘bureau’ is sometimes confusingly used to describe fully, as well as part, managed payroll services, and other organisations, such as accountancy practices, that offer payroll solutions. To avoid confusion, in our articles we do not to use the term.
We discuss each of the above outsourced managed payroll service options in more detail below.
Fully managed payroll services
If you choose a fully managed payroll service for your business, its entire payroll process is outsourced to, and carried out by, the payroll service supplier. Your business needs to provide the payroll service supplier with all of its employee data at the outset of the arrangement and from then on it should only need to share any updates relating to its employees (e.g. new joiners, leavers, pay increases, bonuses) with the payroll service supplier as they arise.
The payroll service supplier is responsible for all other aspects of the payroll function such as generating employee payment and tax calculations, creating payslips and other employee documentation, making payments, submitting HMRC filings and record keeping. It
The payroll service supplier will produce regular reports for the business to review, will provide a helpdesk to answer any technical queries and will have a dedicated account manager who will interact with the business on a regular basis.
Your business will need to maintain little or no payroll expertise in-house.
If you are interested in finding an outsourced fully managed payroll services supplier for your business read our article Guide to UK small business payroll services suppliers.
Part managed payroll services
In the case of a part managed service, you will agree with the outsourced service supplier which payroll processes your business retains in-house and which processes are outsourced to the service supplier. This decision may be determined by the payroll expertise that your business has in-house and/or by the cost of the managed service. The number of payroll processes outsourced can be changed in the future.
Part managed services are often used by businesses that want or need to retain more control over their employee data. A business may decide that it wants to retain responsibility for maintaining employee data, carrying out gross to net salary computations and inputting the correct payroll data into the payroll system. The payroll service supplier would be responsible for all other elements of the payroll process (e.g. BACS payments, auto-enrolment, generating payslips and HMRC filing).
Like a fully managed service, the part managed service supplier will provide a help desk, dedicated account manager and regular reports.
A part managed service can be a useful, and cost-effective, half way house between keeping all payroll processing in-house and fully outsourcing the function.
However, you should note that not all managed service suppliers offer part managed services.
If you are interested in finding an outsourced part managed payroll services supplier for your business read our article Guide to UK small business payroll services suppliers.
Payroll services provided by accountancy practices
Many accountancy practices offer payroll processing to their clients alongside their core accounting and tax advisory services. Often the accountancy practice will use a managed service supplier themselves to provide all payroll processing functionality. They then re-badge the payroll service under their own accountancy brand.
Using your business’s accountant can be a straightforward way to outsource payroll processing as a package with other accounting and tax services but there are some significant limitations:
- Payroll processing tends not to be a core function of an accountancy practice and so a business may not get the service levels that they desire or they may just get referred on to the accountancy practice’s own outsourced payroll service supplier. You may well find it quicker, and receive a better service, by dealing directly with a managed payroll service supplier.
- Your business will be limited to the payroll functionality that the accountancy practice offers compared to a tailored service directly from a managed service supplier.
- An accountancy practice will need to make a profit margin on providing the payroll processing services. It is often, therefore, more cost-effective to deal with a payroll service supplier directly.
Outsourced payroll service costs
Outsourced payroll service suppliers usually charge on a monthly basis. Fees may vary by service supplier and according to:
- The number of employees covered.
- The features provided.
- The frequency of payroll runs (e.g. weekly, fortnightly or monthly).
- Whether they are providing a fully or part managed service.
Outsourced payroll services can be provided as a standalone service or as part of a broader business services proposition, for instance, integrated with HR and/or accounting services.
Outsourced payroll services pricing is not very transparent and service suppliers generally do not advertise their fee rate cards instead asking interested parties to apply for a quote. Payroll service fees are generally charged on a monthly basis and can be combination of some or all of the following:
- A fee per employee.
- A minimum service charge.
- A set up charge.
- Extra fees for additional services (e.g. auto enrolment).
Alternatively, the service supplier may provide a single comprehensive monthly fee. Introductory free trial periods are often available and you should check to make sure that there are no hidden costs in any quote that you receive.
As an example, for a fully managed payroll service, a business with 10 employees could expect to pay c.£75 per month in total while a business with 50 employees could expect to pay c.£175 per month in total.
Fully managed payroll services are likely to be more expensive on a monthly basis compared to payroll software but there will be meaningful cost savings for your business as there are minimal upfront, maintenance and upgrade costs, no additional hardware (server) costs, limited requirement for IT support, and these services should require no, or in the case of a part managed service limited, in-house payroll personnel.
In addition to the factors mentioned above, the cost of a part managed payroll service will also depend on the level of payroll processing outsourced to the service supplier.
Advantages and disadvantages of outsourced managed payroll services
Outsourcing payroll services to a managed payroll service supplier can bring a range of benefits to your business although these arrangements may also be subject to some limitations:
Advantages of an outsourced managed payroll service
- Set up & maintenance: An outsourced managed service is quick to set up as there are no installation or configuration requirements. Maintenance and upgrades are carried out by the service supplier.
- Compliance with payroll legislation: The service supplier is responsible for keeping their payroll processes and software up to date with any changes to relevant employment, tax or accounting legislation.
- Data & filing accuracy: Managed service suppliers employ highly experienced payroll staff which reduces errors and ensures that documents are filed on time and recorded correctly according to the latest legislation.
- Remote working & mobile:
- Managed services will be available 24/7, 365 days per year accessible from multiple locations.
- Managed services have generally been developed to be accessed from a variety of mobile devices.
- Employee portal: Employees will be able to access their payroll data from an online employee portal.
- Customer support:
- A managed service supplier will provide your business with detailed payroll advice from its help desk and account manager.
- Larger service suppliers are able to provide expertise on foreign payroll legislation if your business has, or intends to have, offices and employees in other countries.
- Payroll personnel: The need for your business to have in-house payroll personnel is reduced or, in the case of a fully managed service, avoided altogether.
- Scalability: A managed service is highly scalable leveraging the service supplier’s sophisticated payroll system and experienced payroll professionals.
- Business resilience:
- The payroll service supplier’s systems will automatically back up your business’s employee data.
- As the payroll data is held and processed in the cloud it is protected from any major incident that might significantly disrupt your business’s premises or its operations.
- Your business will not be reliant on personnel with payroll expertise who may leave the business or be unavailable due to sickness or holiday.
- No upfront licence, installation or configuration costs.
- No maintenance or upgrade costs.
- No hardware (e.g. server) costs.
- Your business does not need to organise the printing and distribution of payslips and other documentation (e.g. P60s, P11Ds).
- Payroll personnel costs can be significantly or entirely reduced.
- Budgeting is simplified.
Disadvantages of an outsourced managed payroll service
- Security & control:
- Your business cannot maintain complete control over its employee data which has to be shared with its payroll processing supplier.
- You will be reliant on the service supplier’s security measures to protect your business’s employee data although those measures tend to be sophisticated and comprehensive in the post GDPR world.
- Legally responsibility: Your business retains the fully responsibility for filing HMRC reports accurately and on time. Even if you outsource all of your business’s payroll processing to a fully managed service supplier, if there are any errors your business remains liable to pay any HMRC fines.
- Payroll personnel:
- In the case of a fully managed service there are no in-house payroll professionals, the service supplier has to be contacted every time the business or employees have a query which can be time consuming and inefficient.
- Payroll expertise is lost from the business.
- Business resilience: Access to your online dashboard in working hours is dependent on the robustness of your business’s internet connection.
- Costs: Monthly running costs can accumulate for businesses with greater numbers of employees which may make it more economic for larger businesses to bring the payroll function in-house.
Fully managed and part managed outsourced payroll services comparison
We have set out below a comparison of fully and part managed outsourced services:
- Part managed services vary according to the level of payroll processes retained in-house by a business and those processes outsourced to the payroll service supplier.
- Fully managed payroll services are particularly effective for start ups and SMEs, providing a cost-effective and scalable, payroll system for those business that have little or no in-house payroll expertise. They are also becoming increasingly popular, and economic, for larger businesses looking to outsource non-core administrative functions.
- Part managed payroll services offer an excellent solution for businesses that wish to retain or build up their in-house payroll expertise while benefiting from the experience provided by the payroll service supplier’s team and the cost savings from utilising an outsourced service.
If you are interested in finding an outsourced payroll services supplier for your business read our article Guide to UK small business payroll services suppliers.