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How does payroll outsourcing work?

How does payroll outsourcing work?

When you are working towards a business goal, investing time to manage the payroll department might not top the list of your priorities. Payroll outsourcing is an excellent option under these circumstances. By having your payroll managed by a third party or a payroll bureau, you can focus on business priorities. In contrast, your payroll requirements can be handled by experts more effectively and efficiently.

What does outsourcing payroll mean?

Outsourcing of payroll means having an external service provider handle your accounting, legal and tax support and payments to employees. Employee data, such as hiring date, joining date, designation and contract details, will be held by the service provider who will initiate payments to the employees, via direct credit. Such outsourcing enables you to simplify compliance and relieve the team from the administrative burden of payroll  functions.

Prototypical functions of payroll outsourcing comprise the following:
  • Managing National Insurance and pension contributions;
  • Making and submitting reports required by the government on your behalf;
  • Performing payroll calculations to identify payable and withholding amounts;
  • Initiating Bankers Automated Clearing Services (BACS) payments to employees;
  • Regulating the benefits to your employees; and
  • Reporting to tax authorities.

How would you benefit from outsourcing payroll services?

Having in-house payroll management can be labour-intensive, especially when your core business calls for you to prioritise other activities. Irrespective of the size of your business, finding appropriate payroll expertise in-house can be difficult. Moreover, staying up to date with changing labour regulations can pose a challenge for any business. Companies choose payroll outsourcing services to ensure their in-house team can be more productive and focus on core business functions.

Payroll Outsourcing has the following benefits:
  • A team of experts: 
    When you have outsourced payroll, it means having a specialised and dedicated team to take care of all your payroll processing requirements and adherence to legal guidelines.
  • High-yielding work environment:
    Payroll bureaus ensure well-timed payments to your business's workforce, so employees are rewarded promptly.
  • Cost Reduction:
    While running payroll for a business is indispensable, having a special department may not be feasible. Payroll outsourcing can be economical as it may save the extra cost to set up the operation in-house.
  • Prioritising primary business function:
    Payroll processing can be time-consuming. By outsourcing this task, businesses can utilize their time towards scaling the core business.
  • Law-abiding:
    Not complying with tax requirements and regulations in a timely manner may cause unexpected penalties and fines for your business. Payroll companies at set up to comply with those laws and regulations.
  • Saves you from law complexities:
    Payroll outsourcing can relieve you of the complexities of tax filing, deductions, withholding calculations, and submitting and maintaining other reports required.
  • Competent payroll management:
    A competent payroll bureau will be using the latest payroll technologies at no extra cost to your business.
  • Confidentiality of data:
    All information is kept confidential and data is processed accurately with security and privacy.

How does payroll outsourcing work and is it reliable?

  • The first step for payroll outsourcing is determining the areas where you need support.
  • Next, you decide how to provide the necessary information to the payroll bureau. Having a pre-defined procedure for this is advisable. This information will include your company's hourly or daily rates, salary rates for different designations in different departments, leave policies, vacations, other allowances, and joining dates or contract details of each employee, with name.
  • Having a Data Protection Agreement is wise to ensure data confidentiality and security. This agreement provides an airtight seal on sensitive employee data being shared.
With all the steps in place, your business is now ready to have its payroll outsourced. By delegating your payroll, you have the payroll outsourcing service provider's team of professionals handling tasks so you do not have to risk non-compliance. Their experts will observe and comply with local laws and regulations as necessary.

Common mistakes to avoid while payroll outsourcing

  1. Not upgrading the data used for payroll: Inaccurate payroll data will result in payroll errors.
  2. Cost-benefit analysis: Most companies choose an outsourced payroll management system purely on its pricing. However, it is more important to ensure the organisation you choose provides an all-encompassing service that minimises risk and ensures accurate compliance.
  3. Passing on inaccurate information: Faulty information about the job title or department of the employee, their contract, or job type (wage or salaried) might cause the company to incur penalties imposed by authorities.
  4. Not staying in touch: Even though the payroll processing is being delegated, the company must coordinate with the payroll provider for necessary tasks.

Termination of Payroll if it fails to serve your purpose

When you set up an agreement with your payroll provider, make sure that you go through the termination policy. The terms will likely provide a notice period for termination that has to be respected by both parties.


Payroll outsourcing is a great option, especially if you have a small or medium-sized business or want to focus on core business. This delegation may save time and help you reduce the costs that you can incur on an in-house payroll resource.

However, it is crucial to ensure that you are aligning your requirements with the right provider. At Moore Stephens, we can provide you with customised payroll systems based on your business requirements.

To take your first step towards streamlining your payroll system, contact our team of experts here.

We will be happy to help you.


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