Payroll management is essential for companies employing people under the PAYE (Pay As You Earn) system. However, it is a time-consuming task best left to experts, which is why many small-to-medium businesses use a payroll outsourcing service.
Payroll management ensures that employees are paid the right salary on time, with the correct deductions made. It is essential to keep accurate, up-to-date records (either written or electronic) for this, calculating each employee’s pay and deductions in full. Payments may include:
• Basic wages
• Statutory Sick Pay
• Holiday pay
• Statutory Maternity Pay
• Statutory Paternity Pay
Similarly, as well as the income tax and NI (National Insurance) contributions which are deducted at source through the PAYE system, employee wage slips may list other deductions, such as:
• Trade union membership
• Subscription to a professional body
• Workplace pension
• Company health plan
• Student loan
• Non-essential business ‘perks’ such as a crèche or sports and social club
Employers also pay NI contributions on non-monetary benefits such as a company car. These are calculated at the end of the tax year, but still come under payroll processing.
Even with sophisticated software it can be a daunting task trying to manage all this in-house, especially given the problems which can arise if mistakes are made. This is where payroll outsourcing comes into its own.
Payroll outsourcing through an accountant
The word ‘payroll’ harks back to the days when small businesses kept written records of their employees, and laboriously performed NI and income tax calculations in-house. With most firms now required to file their annual returns and in-year starter and leaver forms (P45 and P46) online, using the information from their payroll records, specialised payroll software is now the norm. However, performing the task in-house is still a time-consuming process, which is why many firms prefer to outsource it to a specialist provider.
While there are numerous ‘standalone’ payroll outsourcing firms, it makes sense to use someone familiar with your business. Most accountants are happy to add payroll processing to the list of services they offer clients; indeed, many firms have a dedicated department specialising in just this area. If the accountant is already handling your business affairs, they may well offer payroll outsourcing as a ‘bolt-on’ service at a competitive rate. Alternatively, a newly established employer may be offered an affordable package in which payroll management is part of the service.
Payroll outsourcing – cheaper than you might think
For a small outlay, outsourcing your payroll to an accountant has a number of benefits, not least the peace of mind in knowing employee tax and NI deductions have been correctly calculated, and HMRC payments made on time. The cost varies according to what is involved, but you can choose the level of support you need, adjusting things as necessary.
For example, a company equipped with payroll processing software can just ask for weekly or monthly payslips to be supplied. If the number of employees later reaches an unmanageable level, the payroll outsourcing firm can take over more of the in-house duties.