Polishing the payroll process

When Lesley Jeffs, director and company secretary of electrical contractor Instalec, joined the company in 1995, she found that all financial functions, including payroll, were being done manually.

‘Our accountancy bills were huge compared to other expenses,’ she says. ‘I called a meeting with our accountant and talked it through with him.’ Jeffs decided to trial three or four software packages before choosing one.

‘We found the software simple to use and it suited us,’ she says. ‘It used to take me practically half a day a week to do the payroll. Now the bookkeeper comes into the office every week, and in only half an hour he’s done the work.’

Internal payroll processing may not suit every business. Apart from the purchase and support charges, there is the cost of a qualified operator. Moreover, if staff are not properly qualified, errors can slip in.

Keith Fowler, operations manager at JKM Property Services, says: ‘We used to do payroll internally, with someone who also did HR. Because she was split between the two things, there were mistakes.’

The solution came in the form of payroll outsourcing. This not only improved accuracy, but was cost effective too. ’It’s saved us a lot of time and hassle,’ Fowler concludes. ‘Payroll doesn’t concern me anymore. I never even think about it.’

According to Louise Mitchell, director of Precise Payroll, companies have a range of reasons for choosing to outsource: ‘Some companies need help for a little while, for example a maternity cover. Others don’t want to have responsibility for payroll: maybe you don’t want that sort of information lying around.’

Whether outsourcing or bringing software in-house, it pays to shop around. The capabilities and prices of software packages vary widely, as do the charges made by payroll outsourcers.

Jeffs advises those that are considering buying payroll software to ask for demos before committing themselves. ‘Companies are quite happy to send out demo disks, or talk you through a demo online. Get a feel for what’s going to work best for you,’ she says.

She also stresses the importance of ensuring more than one person in the company is comfortable with the software, saying: ‘Make sure you have at least two employees that can handle it, so that you’re covered when someone goes on holiday. Similarly, don’t pick a package that only suits one person in the company and which nobody else can stand.’

Weighing up the cost

For many companies that use a payroll service, it is one of the great outsourcing no-brainers.

‘It’s been very cost effective, a few pounds per employee,’ says Piers Carey, founder of IT reseller Teneo, which employs about 30 staff. ‘When you’re a small company, keeping up with changes in legislation, tax rates and so on is very difficult, and there is always the worry that you’ll get something wrong. So it’s much easier to get specialists to do it.’

Ann Bevitt, a partner at law firm Morrison & Foerster, says that companies dipping their toes in the water when it comes to outsourcing tend to start with payroll and recruitment. For small to mid-sized businesses in the UK, she observes, there are plenty of good providers and it’s unlikely you’ll run into any problem.

That might change as your company becomes more complex. ‘Problems do arise with larger, multi-jurisdictional organisations,’ Bevitt adds. ‘I’ve seen cases where the first payroll run after the outsourcing is implemented, people don’t get paid. That’s usually as part of a bigger deal, where you thought payroll would be the easy bit.’

On the whole, though, outsourcing payroll tends to reduce the likelihood of mistakes, as well as allowing those running the business time to do exactly that. According to Clive Lewis, head of SME issues at accountancy body the ICAEW, ‘Payroll procedures can quickly get very complicated, particularly with things like statutory sick pay. An outsourcing company can help you avoid getting caught up in all those issues.’

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.