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When Should You Bring Payroll In-House?

Last updated on September 20, 2022

When a business is in its infancy, you either struggle through everything or you begin to outsource bits to save time. Outsourcing to a payroll provider means you can remove the burden of even thinking about payroll, at least initially.

But as your business grows and changes, you might look to start bringing important functions back inside the control of your four walls. In this blog, we’re exploring reasons you might consider bringing payroll in-house, the benefits of doing so and how to transition to this new way of working.

Firstly, what is in-house payroll?

In-house payroll is exactly what you think it is — it’s when the payroll process is managed within your company, rather than outsourcing it to a third party. And while that third party might have freed up some valuable time when your team was only tiny, there are many benefits of making payroll internal again as your company grows. 

Processing payroll in-house doesn’t have to be as daunting as you might think — there’s software out there to help support your business as it grows, but we’ll discuss this later.

What are the pros and cons of outsourcing payroll?

Making any business decision comes down to weighing the benefits and risks. And deciding whether to bring your payroll in-house or outsource is no different. 

To help make that decision clearer, let’s look at the pros and cons of outsourcing your payroll…

Pros of outsourcing payroll

  • We can’t dismiss the level of support and expertise you can glean from outsourcing your payroll. You tap into professional advice, which can be very helpful as your business grows and changes (and legislation changes) — particularly if you don’t yet have these skills in-house. 

  • Let’s face it — you save time by outsourcing payroll. It’s something you don’t even have to think about. It’s being done for you in the background, and that’s all you need to know to sleep happy.

  • You save on recruitment fees. You don’t have to hire a payroll administrator because you have experts on hand via email or phone to help guide you through any questions or problems you might encounter.

Cons of outsourcing payroll

  • It can be pricey. On average, it costs £6 per employee per month. When growing your business, it’s essential to keep an eye on costs. It’s not always reducing them but ensuring that your current spending adds value to your business. If there’s a cheaper, more efficient way to do something, you’d want to know, right? (There is, it’s called automated payroll software!)

  • You could be exposed to payroll errors. When you outsource something, you put a lot of trust in the provider — you hope they’re as particular as you would be, and you hope they’re managing payroll correctly and without errors. But, unless you have complete visibility in-house, you’ll never fully eliminate mistakes.

You lose visibility over company data. Tracking payroll data is important. It drives accurate business decisions, it helps retain talented staff (and attract them). Plus, understanding it helps improve business operations in general. So if you aim to grow as a business, you should consider bringing payroll back in-house.

The question is — are you ready to bring payroll in-house?

What works for one company might not work for another. It’s important you consider your business's best interests before making the switch. To help make your decision a little clearer, here are three signs it’s time to bring payroll in-house.

1. There are currently too many payroll errors

If you’re getting a lot of complaints about your current payroll process, or you’re notice errors cropping up time and again, then it might be time to bring your payroll in-house. 

While a rising headcount is one reason this can start to happen, there are others too, like a change in organisational structure or in stakeholders owning payroll (e.g. it going from being a finance function to being shared between two or more teams). In these instances, continuing with outsourcing can result in things getting lost in translation. 

In other words, outsourced providers aren’t as in tune with your business needs as you are, especially if you’re growing quickly. Information gets missed, and data gets inputted incorrectly, especially if you’re sending spreadsheets and emails back and forth. Managing this process in-house means you can remove all that extra faff from your to-do list (plus, you’ll be able to can eliminate basic errors more quickly).

2. Your payroll costs are needlessly expensive

Outsourcing your payroll is expensive — you're paying a premium for external expertise. As your business scales up and you recruit more employees, costs can easily spiral. Making sure you’re spending on add-value activities is crucial for business growth and cash flow management. Bringing your payroll in-house could save you time and money and help you re-direct funds to other areas at key times of growth.

When you choose an in-house payroll system, you can sync your HR and accounting software. You can also add on other services, to help you manage employee expenses, onboarding processes, as well as leave and absences. You no longer have to worry about adding additional payroll services to your outsourced payroll provider, wracking up your monthly bill.

3. You’re in need of better reporting

As your company evolves, you’ll want to start tracking and reporting your data. Once this becomes a real need, this is a capability you’ll want to ‘house’ internally. For example, imagine if one of your stakeholders wants a quick report about salaries across your part-time staff. If you’re still outsourcing, you’ll have to contact your provider for this (that’s even if they have reporting capabilities in the first place). 

The truth is that outsourcing, while convenient initially, becomes a bit of a grind. Especially as your company really starts to scale. It then becomes vital for teams to establish OKRs they can measure and track. Data becomes an important source for establishing whether or not they are staying in line with these objectives. If you can’t access the payroll data you need instantly, you won’t be able to track costs accurately or even make last-minute payroll changes (which, let’s be honest, happens pretty frequently) — the process just isn’t as flexible as it could be if managed in-house.

The outcome?

Using payroll software means you get all the benefits of in-house payroll, with all kinds of other advantages from outsourced payroll. Automated payroll software gives you the data visibility required to understand your business. But, the software part helps keep manual tasks and staff requirements to a minimum.

Everyone benefits from much smoother and more efficient payroll management processes. Think automatic payslips and deductions, simplistic tax calculations, payroll completed on time every time, and human errors squashed.

Interested in learning how PayFit can help your business transition to in-house payroll? Why not book a demo with one of our product experts?

Want to experience the future of payroll?
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