Choosing Outsourcing Payroll Compared With Payroll Software

Income tax and national insurance contributions must be calculated and deducted from the employee each pay period, payslips produced for each employee and the tax liability accounted for and paid over to the inland revenue office. Calculating the deductions can be achieved using the HMRC CD-Rom while payslips represent an area which may well sway the decision.

Many medium and large companies employ a specialist wages department to perform these functions. Some medium sized companies may still choose to outsource the payroll function leaving many of the technical issues that might be encountered to a specialist payroll service.

Small businesses may choose to outsource their payroll solutions because they are not familiar with the intricacies of payroll although HMRC run regular paye seminars to assist employers. The system adopted should calculates income tax and national insurance deductions and deal with tax code changes, new employees and changes to existing employees plus taxable benefits and allowances such as statutory payments for sickness and maternity leave, contracting out of the state pension scheme and student loan repayments.

The main benefit of manually producing the employee payroll in house is the low cost although the time spent might be better spent running the business which payroll administration can detract from. The cost may not be the cheapest option if a wages clerk is required to produce the payroll.

Purchasing software can save significant time compared with manual calculations while outsourcing payroll may be more expensive but in some cases where there is a lack of knowledge the safer option. Although time is usually more important as the payroll production cost is not usually a big factor.

Outsourcing payroll adds a small additional cost to running the business but would normally carry worthwhile benefits in reducing the time spent on the function and reduces the payroll administrative burden.

Main benefits outsourcing payroll to a service provider

1. Time saving when calculating the payroll deductions and dealing with different and sometimes complex employee circumstances.

2. Using a professional outsourcing service to advise on potential payroll problems and difficulties.

3. The cost of outsourcing payroll should be compared against the cost of employing specialist in house payroll staff. Even when the payroll is outsourced some wages staff may be required.

4. Payroll service providers almost invariably use a payroll software package and normally produce accurate income tax and national insurance deductions and pay records reducing the prospect of problems with the tax authorities.

5. Payroll administration such as preparing the tax deductions schedules, dealing with starters and leavers, year end certificates for employees and the employer annual returns are normally all automated as part of the payroll service

6. The outsourced payroll company should also be responsible for producing employee payslips, advising tax and deductions liability and in larger businesses also provide a payroll analysis for accounting purposes.

Where to find outsourced payroll providers.

Finding a suitable outsourced payroll service is not difficult. Local telephone directories or searching the internet would produce many potential payroll service providers.

Many accountancy firms offer payroll services to their clients and although the prices may struggle to be competitive price is always negotiable. Using the business accountant for the payroll has advantages since a substantial cost area for most businesses is already known to the accountant since they prepare the numbers.

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