Managed payroll or in-house payroll software?

Paying employees is a business-critical activity for any organisation. You have to process payslips and payments correctly on time, every time. Payroll is one of your organisation’s largest expenses, and payroll mistakes can not only cause hugely disgruntled employees and reputational damage but leave you at risk of hefty fines from HMRC.

Today, organisations have several options for processing payroll. You can rely on in-house payroll software, use a managed payroll service, or even use a mix of the two. But which is right for your organisation?

Things to consider when deciding whether to process your payroll in-house or have it managed externally:

• Which method will cost less this year? Over the long term?
• How can you ensure proper tax filings and payments?
• How much control do you want over the payroll process?
• How often do you process payroll?
• How complex is your payroll?
• How often do you have to create last-minute payslips?

Why choose in-house payroll?

Depending on your organisation’s internal resources and the complexity of your payroll, it is quite possible that in-house payroll software can produce long-term savings over the cost of continual outsourcing fees. Payroll software also increases your control over employee data and the payroll process itself, so you can protect private information, including wage and salary details.

For medium to enterprise-sized organisations, processing payroll in-house can offer a number of other important benefits, including:

• Accurate, timely payroll with a solid return on investment (ROI)
• Total control over payroll processing, including payslip printing, reporting, and forms, as well as managing direct deposits and payment of taxes with real-time reporting to HMRC
• Maximum flexibility over last-minute changes prior to a payroll run
• Comprehensive, customizable reporting to help you analyse compensation and plan for the future
• More accurate data through integration with internal HR, accounting, and time and attendance systems
• Ability to deliver e-payslips, P60s and P11Ds via your employee self-service software.

Why choose a managed payroll service?

Processing your payroll in-house requires expertise, physical space for personnel and equipment and investment in technology. It will require recruiting specialist staff or taking someone out of another area of the business. 

Many small to medium-sized organisations and indeed some larger ones too, decide they would prefer the reassurance and convenience of having a third-party handle their payroll for them. Here are some of the benefits of using an outsourced payroll service:

• Minimal up-front investment
• Reduction in overheads associated with specialist staff and dedicated space
• Flexibility to cope with peak periods in your business
• You don’t have to worry about key staff being absent or leaving
• You don’t have to invest in ongoing training or be concerned with keeping up-to-date with payroll legislation
• If an inaccuracy does occur, there is a clear channel for claiming reimbursement – you won’t have this option in-house
• You are entitled to move to a new provider if you are dissatisfied – a lot easier than dismissing or retraining your own unproductive staff
• Employee fraud is not an area you like to think about when you are running a business, but the sad truth is that you are at risk of various dishonest activities if you manage your own payroll department. Whereas, committed payroll providers have technologies that track payroll processes and will alert you if suspicious activity is uncovered or suspected.

The middle-ground

A shared approach to payroll can include all the benefits of a bureau service but with the additional flexibility of in-house access to payroll software for data entry and ad-hoc reporting. This approach also enables you to more readily integrate other business systems in your organisations' digital ecosystem, including your HR software, finance software and budgeting systems.

Case study:

Civica’s centralised payroll service with integrated HR software has saved the Trust in Learning multi-academy trust £145K in one year and enabled it to pursue a data-driven people strategy.

The Civica payroll bureau handles processing for all trust schools, and with both payroll and HR data centralised in the same platform, integrated with its finance and budgeting systems, HR Director Sue Elliott has the information she needs to inform the trust’s people strategy.

“The Civica solution gives us a clear line of sight into the metrics of our workforce — something we’ve never had before. We have transparency about what our workforce looks like, how it moves around, and where the pinch points are. The ability to shape our people strategy with live data in this way has been transformational.”

Sue Elliott, HR Director, Trust in Learning Academies