Paying staff accurately and on time is the cardinal rule of payroll. And it's not as simple as it seems. The risks of getting it wrong are significant, and with SME leaders often struggling to cover payroll themselves, it can be difficult to keep up to date with the ever-changing compliance landscape.
So, when is the right time for a growing business to seek help with payroll? And what can they stand to gain by outsourcing one of their most important business processes?
Benefits of outsourcing to a third party
“One of the things that's key to the ability to outsource is scalability. Companies that are on any type of growth trajectory find that adding any number of new employees is a lot easier when you outsource versus trying to do everything in-house.”
- Kirk Boster, Managing Director at M+A Matting Europe & Purple Mustard
- Saving time. If you have to spend 30% or 20% of your time on payroll every month, that's 20 or 30% of the time you can't spend on revenue generation.
- Less dependency. Hiring one person in-house makes you dependent on their time, and mistakes can happen while they are on vacation or take sick leave.
- Paying employees on time and correctly.
- Software. Get access to the best possible software and modern platforms, without the need to maintain or update them yourself.
- A one-stop shop. Payroll is bigger than just payroll, but if you've got the right provider, you can have a one-stop shop where all these things are covered.
“Our management tries to spend time where we can add value. We let the professionals do their work on payroll, and then we can focus on other aspects of our business that allow it to move forward.”
- Kirk Boster, Managing Director at M+A Matting Europe & Purple Mustard
What are some consequences associated with a poorly managed payroll?
Pensions and taxes all come with deadlines and fines, and missing them can be quite expensive. Incorrect reporting of salaries, benefits, and pension could result in an additional burden on your employees. This leads to employees losing trust in their employer, and becoming demoralized. Loss in reputation is also a risk.
Is it a good idea for an entrepreneur to do their own payroll?
Busy entrepreneurs often do the business payroll and other admin tasks outside working hours during evenings and weekends, and maybe in a hurry without giving it the right attention. The complexity of payroll is increasing all over the world due to governmental reporting and adding new laws and regulations.
“A big factor in that decision is the size of the company, and number of employees. If you pay over a certain number of people, you might want that control internally, but for your smaller SME businesses, there is a lot to gain from keeping themselves safe from error by outsourcing and passing on the complexities to dedicated professionals.”
- Stephen Abbots, Director of UK Payroll Services
In the UK alone, there are currently 174 pieces of legislation which directly affect payroll. We see the same across countries and regions. Without the needed knowledge, you are likely to get it wrong, and doing it all internally is prone to error.
When is the right time for a business leader to start thinking about outsourcing payroll?
Doing payroll in house is a big responsibility, so SME leaders and entrepreneurs starting their business should start looking for a partner as one of their first steps.
“Payroll is a dedicated process. It's easy to outsource. It's easy to have someone take care of your payroll. With the time you save on not doing your payroll, you can focus on business growth.”
- Erik Bekkåsen, Director of Nordic Payroll at Azets
- Identify three to four well-known BPO providers.
- Describe your business, your needs, and expectations to the shortlisted providers.
- Request they share their offer, showcasing activities included and the total fee.
- Invest in a face-to-face meeting for the BPO providers to present their offer and for you to better identify the provider.
Things to look out for when searching for an outsourcing partner
- Which tools are available?
- Which online tools are available for the employee for self-service?
- The ease of working together.
- How easy it is to access or get in touch with the payroll company.
- Performance, and their ability to pay your employees on time.
“You need to know you're getting a good service in which communication is key. You should have a direct line into the payroll, contact across multiple platforms throughout working hours, and if you begin to see your provider as an extension of your back office team, then you are on the right track.”
- Stephen Abbots, Director of UK Payroll Services
Common mistakes when starting a partnership
- Rushing onboarding. Parallel runs are recommended for a smooth transition.
- Not having clear expectations of the services, who is responsible, and prices.
- Poor communication.
- Don't wait too long. Usually, by the time people are asking for external services, they probably should have done so about a year beforehand.
- Not making sure that the provider has the capacity to handle you as a client and the expected growth if you have a growing company.
- On day one, everybody should be clear on what the service will look like. It's not a discussion for when the invoice for the first month is coming.
“Be clear in your communication and if there are any issues, bring them to the table as soon as possible before it grows into a bigger trust issue. Transparency within the partnership is key.”
- Erik Bekkåsen, Director of Nordic Payroll at Azets
While investment in outside advice can seem hard to justify, particularly during a tough economic climate, the savings and benefits can add up with the right solution. Entrepreneurs should look for a reliable partner who has synergy with their business, will keep the channels of communication open and can offer advice about maximizing cost savings through payroll. Get this right and SMEs can build resilience and robustness for future growth.