Every company reaches a point where running payroll on a spreadsheet doesn’t cut it anymore. There’s too much data, too many employees, and too much risk. So how can you spot this point before it arrives and proactively switch to outsourced payroll services? At what point would you be better off switching to an automated payroll app instead?
Knowing when to outsource payroll is a tricky thing. Switch too soon, and you will increase costs dramatically. Switch too late and the risk of incurring late filing penalties increases, increasing costs again.
These days payroll software has further muddied the waters. Should companies adopt next-generation software solutions or use a service provider? Here are five questions that help you choose the right option.
Let’s begin with the obvious symptom: Are your spreadsheets too tough to manage? This is a qualitative factor, so you won’t have an easy metric to measure your frustration. But you can spot a few telltale signs ahead of time.
A fast-growing employee base often hints at future spreadsheet trouble. With statuses changing quickly and filings getting more complex, your spreadsheet will inevitably pick up errors due to employee fatigue. Errors in filings reflect this situation.
Another telltale sign is you dreading opening the spreadsheet. If the data in there is too complex and on the verge of disorganisation, you’ll know it. This is a sure sign that you need to ditch it for either software or an outsourced service.
Which one should you pick? A good rule of thumb is to look at your company’s growth trajectory. If you have significant headcount growth planned for the future, software may be the best choice, since it scales well and automates the clerical parts of payroll processing. If your company’s employee base is stable and likely to remain so, an outsourced service provider may be the most cost-effective choice.
If your payroll day is all about solving one error, figuring out the cause of another, and expecting yet another error to pop up, you might be better off outsourcing your payroll to an accounting firm or payroll bureau.
Errors happen because of an overreliance on manual processes. As efficient as you are, you cannot keep pace with exponential growth. You need technological help to prevent those errors and move away from clerical tasks.
For example, retrieving employee statuses and verifying them probably takes the bulk of your day. What if you instead had a payroll software program that automatically pulled statuses from your HR platform, updated them, and filed them correctly with HMRC?
Or what if you sent a service provider your data dump of employee information and they gave you a clean report and filed payroll for you? As your company grows, automation and outsourcing are critical. These solutions give you more time to conduct value-added work and offer cost-effective growth.
HMRC doesn’t change regulations very often. But when they do, it tends to have a major impact on how companies run payroll.
In recent years, the regulator has started shifting towards a digital-first approach to ensure companies pay taxes on time. Initiatives like automated PAYE filings can help streamline payroll operations for companies, but when formulas and protocols change, there’s always a learning curve and process friction.
If keeping up with manual payroll tasks wasn’t enough on its own, teams need to keep track of these changes and adhere to them before deadlines. HMRC won’t hesitate to slap you with a fine, which your company’s executives and employees will not appreciate.
Software is an easy solution to this problem. Thanks to updates, the software will automatically prompt you for new data and files in HMRC’s preferred format. An outsourced service provider is the analog version of this and is just as efficient, if your employee base is stable.
Growth is an important factor when analysing whether you must outsource payroll. Not every company needs to hire more people as time goes on.
If your company is a stable small business, outsourcing payroll to a service provider could make the most sense. The service provider will install a repeatable framework you can rely on. Their deadlines and project management approach to payroll will have you filling in time for deadlines, and they will keep you up to date with the latest rules.
If your company is growing quickly, however, software is a better choice. These companies need flexibility, something that is at odds with a payroll service provider’s rigid schedules and project management approach.
Growth largely dictates your choice, so evaluate it carefully and choose the right option.
Aside from growth, there’s another factor you must consider. Even if your small business is stable, look at your compensation formulas.
If these are too complex and include variables you can’t easily calculate with simple equations, an outsourced service provider will struggle to serve you well.
Automated software is the best choice for such companies. Growing companies almost always use creative compensation packages to attract talent. These situations need plenty of creative design and financial projection, both of which are tasks that outsourced service providers cannot fulfil efficiently.
If, however, your compensation is simple, involving just standard benefits and a flat monthly wage, an outsourced service provider can apply their payroll templates to your business easily, giving you top-notch service.
Payroll is a significant expense in your company and introducing efficiency to it pays huge dividends. Outsourced payroll service providers are a great option most of the time. Make sure the scenario your company is in aligns with the situations presented above to decide whether upgrading to an advanced payroll app or outsourcing to a bureau is the best solution for you.
Image by Freepik