Why outsourcing takes the risk out of payroll

People choose to work for businesses for a whole host of reasons – it might be the company’s values, career development opportunities, or perhaps personal bonds with colleagues. But whatever it might be, this will quickly be forgotten if people experience problems with their pay.

Employee pay is the foundation of trust that all working relationships are built upon.

There is a reason why employees can become very emotional when it comes to pay, and isn’t just about money. If anything interferes with their remuneration it feels like an agreement has been broken, that there has been a betrayal of faith – and it can affect people deeply.

Of course, all companies want to avoid that scenario and ensure they have a smooth running payroll function – one that never falters and serves the needs of its employees impeccably. But in practice, this isn’t always the case.

While payroll leaders want the operation to be as robust as possible, they also face constant challenges – caused by limited budgets, changing personnel, evolving technology, new legislation, modern ways of working, etc.

That’s why, even with the most competent person in place, there will come a point when every organisation questions how they should manage payroll and whether an outsourced payroll provider is the safest option. 

Finding a safe pair of hands

Sometimes that decision is triggered by an internal departure. What if a long-standing payroll leader decides to move on? Who then takes on the responsibility – the finance department or the HR department?

It’s unlikely that either leader in those departments will want to take direct control of payroll themselves, given the other priorities they have to focus on. But, because of the importance, they will need to be confident that it remains in safe hands. The usual question at this point is whether it’s better to recruit someone to operate an in-house team or outsource the function to an external payroll provider.

While some businesses prefer to keep this business critical function in-house, others see that an expert external provider can be the less risky option. And, when they evaluate the risk factors involved there are several reasons why they reach this conclusion:
 

The legal requirements

The regulations surrounding pay are constantly being updated and the requirements placed on payroll teams continue to grow. Just consider what was involved in incorporating furlough schemes during the pandemic.

The challenge with new regulations is that they are rarely a box ticking exercise. UK legislation is often open to a degree of interpretation, with implications that can be testing for a small payroll team.

Dedicated payroll providers, whose role incorporates advising companies on the best course of action when new legislation is rolled out, simply don’t have the same challenges. They may even be involved in advising government at the early stages, when legislation is being drafted – and will have a firm grasp of the intentions behind any new HR regulation.

The evolution of technology

While technology has become a crucial enabler for payroll teams, helping to eliminate administration and the potential for human error, it still poses a risk – from both a financial and compliance perspective.

This is not least because the expectations we place on technology are changing all the time. In an era of digital transformation, for example, we are increasingly seeing a desire for different systems, be that HR, finance or payroll, to talk to each other.

The major concern is that technology will require ongoing investment. Knowing how best to future-proof the company can be a challenge for payroll teams, and one that has potentially costly consequences. But for large payroll services providers, which are developing payroll technology themselves, this is much less of a challenge.
 

Managing data

Given the advancements in technology, payroll teams are also being asked to do far more with data. Larger organisations, for instance, are now required by law to analyse pay and bonuses to report any gender pay gap.

The desire for greater insight isn’t just coming from government, of course. There is a growing expectation that leadership teams should be able to access data and gather insights in an instant.

However, companies are also expected, by law, to protect sensitive data. With organisations wanting to access payroll information from anywhere, steps have had to be taken to ensure data remains secure.

With greater resources available in terms of legal knowledge, technical ability and a much larger payroll talent pool, this is another reason why external providers are often viewed as a safer, more cost effective way, to manage payroll.