Date04 Sep 2023
A business’ payroll system is often underappreciated, but it’s a fundamental cog in operations. A high profile example is through Elon Musk’s Twitter takeover. In one of his first acts, he issued an ultimatum to staff to work longer hours at higher intensity or leave. Many Twitter employees, including its entire payroll department, chose the latter. Some of the remaining staff subsequently began reporting late and missing wages.
Paying staff accurately and on time is the cardinal rule of payroll. Not paying employees for their work is the quickest way to upset them at a moment's notice. However, it’s not as simple as it seems. In the UK alone, there are currently 174 pieces of legislation which directly affect payroll.
The risks of getting it wrong are significant, not just because of the impact on staff, but also the threat of fines and reputational damage. 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?
It for the most part comes down to the size of the business. In basic terms, the more employees, the more processing required. Although payroll outsourcing goes beyond simply taking the processing requirements away from an internal resource, it removes the complexity, the need to know how to navigate all the legislation and system costs.
Payroll can be a real value add and deliver to the bottom line of a business through smart and efficient management. If the management of its operation is taken away from entrepreneurs or business owners, it means more time to focus on other aspects of the business. As an example, if 20% or 30% of a shareholder’s time is spent on payroll every month, that’s 20% or 30% of time that can’t be spent on revenue generation or cashflow management.
Each business will have their own priorities and what they look for from an outsourced payroll provider. Some will be driven by cost alone, while others will look for synergies between them and the provider.
Communication is a key part of the relationship. There should be a direct line between payroll and multiple business functions and the provider should be seen as an extension to the back-office team. If there seems to be a good match up from the start, then the relationship is on the right track.
Trust is also of huge importance. A provider needs to be in a position to handle all payroll requirements to the level and deadlines required. If this happens and there’s a trust that everything will be taken care of without any worries, it’s a big plus point.
Onboarding is the key. If this is done successfully and aligned to the business’ goals, it provides a good basis for the provider. Given the importance of it, it’s not a process that can be rushed. Time is required for parallel runs (something which we highly recommend) to give confidence to leadership that it will be efficient from the start and that everything is in place.
Of course, regular and proactive employee communication needs to be at the forefront of the transition. Staff need to be comforted that there will be no change to them receiving their pay, it’s simply a case of this being handled by an expert provider. Payslips may be delivered via another method but it’ll have no impact on their wages.
Payroll can account for as much of 70 or 80% of a company’s spend. If the payroll function is optimised and this is reduced by even 10% then there’s a dramatic impact on the bottom line. A saving could be in the form of making best use of salary sacrifice.
As businesses contend with increased costs, salary sacrifice represents an opportunity to incentivise staff without going down the most obvious routes of a one-off bonus or salary increase. Both of these will be subject to Pay As You Earn (PAYE) and National Insurance Contributions (NIC) and reportable via payroll Real Time Information (RTI) in the normal manner. Cash payments will incur employer NICs and potentially pension contributions so the cost to the employer will exceed the increase or bonus provided.
Salary sacrifice schemes allow employees to give up an element of their ordinary contracted gross pay in exchange for the provision of a qualifying non-cash benefit, which could be an increased employer pension contribution or the provision of an electric vehicle.
If you have any questions in relation to payroll processing, outsourcing or anything mentioned within this article, please get in touch with a member of our specialist team or your usual Azets advisor.