Payroll Services & Payroll Outsourcing – The Complete Guide for Small Businesses

From payroll services to cloud-based payroll software, outsourcing payroll in part or in full has never been easier.

Our guide explores the advantages of outsourcing payroll, the pros and cons of different payroll service providers, and how to choose the best payroll service for small businesses.

Payroll And Payroll Services

For both small businesses and larger entities, managing employee payroll is an unavoidable requirement of any business with employees. What’s more, it’s essential that payroll is processed accurately and in a timely manner.

Paychecks must be calculated correctly, employees must be paid on time, and any payroll-related taxes paid to HMRC.

Managing payroll can be a daunting prospect for even an experienced business owner – which is why many businesses use payroll services to make the process easier, or outsource it entirely.

In recent years, cloud-based payroll software has joined traditional accounting and specialist payroll service providers to provide a wealth of options for a small business owner.

An Introduction To Payroll Services

In this guide to payroll services, we’ll help you answer the basic questions such as:

  • What are the advantages of using payroll services?
  • How much do payroll services cost?
  • What should I look for in a payroll provider?

It will also look at three different payroll providers to give you a solid basis from which to compare payroll services – and to find the best payroll service for your small business.

What are the advantages of outsourcing payroll?

While it’s possible to manage payroll in-house, there are a number of compelling reasons to consider outsourcing payroll: 

Free-up Time & Resources
Managing payroll is a time-consuming process, even assuming a business owner or a member of staff is trained to manage it. As well as ongoing responsibilities such as processing payslips, staff would also need to keep up-to-date with the latest tax rules & legislation.

Reduce Risk Of Errors
Well-coded payroll software should be intuitive to use and make it easy to input values to produce accurate payroll calculations. Outsourcing payroll entirely to an experienced person or business reduces the risk even further.

Ensure Tax Compliance
In addition to minimising payslip errors, a good payroll service provider will ensure that your business is compliant with all of HMRC’s requirements.

Image of a small business owner who has outsourced her payroll services
Small business owners outsource payroll services for ease and compliance

Types Of Payroll Service

Online/Cloud Services & Payroll Software

The most popular type of payroll service used by small businesses is online or “cloud-based” payroll software.

At a basic level, payroll software takes data such as salary or timesheet data and automatically calculates the amount that each employee should be paid. This includes correct deductions for tax, national insurance and even pension contributions.

However, payroll software will often come with a number of additional benefits. Including, but not limited to, generating payslips, providing employee portals, managing timesheets & rotas, and providing 24hr support and training.

Advantages: The best online payroll software is intuitive to use, low-cost and takes significant hassle out of managing payroll while remaining tax compliant.

Disadvantages: While payroll software significantly streamlines processes, it still requires manual input and management from a member of staff.

Specialist Payroll Companies

For business owners who want to outsource payroll entirely, there are a whole host of companies offering fully managed payroll services.

In this instance, total responsibility of managing payroll is outsourced to a third party – everything from ensuring tax compliance to producing and distributing payslips.

This leaves a business owner with little more to do than pay the monthly or annual fee to the third party payroll provider.

As with payroll software providers, many companies also include additional features such as HR solutions or their own online portals to manage employees, timesheets and view payroll information. It’s worth noting that many providers offer tiered packages, including cheaper part-managed payroll, or simply access to their own online payroll software.

Advantages: A provider offering fully managed payroll services removes (nearly) all payroll responsibilities from a business owner – freeing up the most time and resource to be used elsewhere in the business.

Disadvantages: Freedom from payroll work comes with a “literal” cost. Most fully managed plans are significantly more expensive than payroll software.

Accountant / Bookkeeper Payroll Services

In addition to tasks such as filing tax returns and traditional bookkeeping, many accountants also offer payroll services. Much like the fully managed payroll services described above, accountants can take on the entire payroll process – from setting up a new employee with HMRC, to generating monthly or weekly payslips.

Accountant payroll services can be convenient, however it’s worth noting that payroll services are valued very differently from one accountant to the next.

On the one hand, your existing accountant may offer you competitive rates to manage your payroll on top of the other work they do for your business. On the other hand, accountants who don’t enjoy or value payroll work may price payroll services at a premium – simply because they are happy to focus on other areas of accountancy. 

A good accountant will be honest about what they charge vs bespoke services. (If you are looking for a new local business accountant, please feel free to use our free quote service).

Advantages: It can be convenient to have your existing accountant manage payroll – giving you one point of contact for everything related to tax and payroll.  Like payroll companies, they can also manage the entire process. 

Disadvantages: Costs can vary significantly from one accountant to the next. Generally, the costs are significantly higher than payroll software.

How much do payroll services cost for a small business?

The amount that a business will pay to outsource their payroll will rely primarily on two factors:

  • How many employees a business has
  • The extent to which a business is looking to outsource payroll

Online/Cloud Services & Payroll Software can cost as little as £10 a month if your business has just a handful of employees. Entry level plans start from around £10 per month as a flat fee, or £5 per month with an additional £1-2 per month for each employee. Plans with advanced features, or those which can manage a larger number of employees, cost more.

As we noted earlier, Accountant / Bookkeeper pricing for payroll work can vary widely. You can expect to pay around £10 a month per employee, however some accountants may be happy to charge £4-5 per payslip processed, after an initial £15-20 set-up fee for each employee. 

Specialist Payroll Service Providers can charge as little as £50 to £200 per month – depending on the level of payroll management desired and the number of employees. An example cost from an entry-level provider is £50 per month plus £3 per month for each employee. For large multinational corporations, the price will far exceed this.

What should I look for in a payroll provider?

So there are a number of options for a business owner to choose from when looking for payroll services. Even within the payroll software category, the choice can be overwhelming. Here are some important considerations when you compare payroll services:

Number Of Employees
Different payroll services structure their fees in different ways, so keep in mind the number of employees that your business has when comparing pricing. A cheap entry level service can quickly become expensive if it also charges a fee per employee.

Scalable Service
It’s also important to think about how many employees your business might have in the next 1-3 years. Would your preferred payroll service be suitable for a larger, growing workforce?

Industry Specific Demands
With a vast number of payroll services to choose from, you may also find a provider who specialises in your industry. In these cases, their expert knowledge could be invaluable. 

Training, Support & Compliance
Fully managed payroll services will take care of all of these elements. However, even payroll software providers should have teams dedicated to training, support and compliance to help you manage your payroll day-to-day and year-to-year.

Additional Features
It’s important not to lose sight of the main goal – managing payroll! – but the additional features offered alongside many payroll services can be genuinely valuable tools. From heavily discounted bookkeeping software, to full HR solutions, you may find that you can streamline other parts of your business in addition to payroll.

Which payroll service is best for my business?

Choosing a payroll service depends almost entirely on how much a business owner believes they can benefit from redirecting time and resources away from administrative tasks such as payroll management. Like many areas of business, it’s about finding a balance between convenience and cost. 

Opting for a more expensive, fully managed payroll service might make perfect sense if it allows a business to focus more on profitable activities.   

While the question of “which” payroll service differs for each individual business, it’s fair to conclude that outsourcing payroll to some extent can save nearly all business owners time, hassle and stress. The low costs of entry-level payroll services are a small price to pay to ensure accurate, compliant payroll processing.

3 Of The Best Payroll Services To Consider

As above, it’s vital that you spend time choosing a payroll service which meets the needs of your business specifically. But to help you get started, the three established, well-regarded payroll services below offer contrasting levels of service at three different price points.

Sage Payroll – Leading Online Payroll Software

Sage are a world-renowned business software provider who create products for small and medium businesses alike. From £10 per month Sage Payroll offers cloud-based, HMRC compliant payroll software for up to 50 employees – with 24/7 support. It’s a solid benchmark from which to compare other online payroll software providers

Payescape – Fully Managed Payroll

Payescape were named the #1 Payroll provider for UK small business in 2018. They offer fully-managed payroll services with all the core features you would expect to see. We selected Payescape because of their transparent (and competitive) pricing. Simply use the sliding scales on the Payescape Website to calculate the cost for your business. Again, it’s a useful benchmark from which to compare managed payroll services.

HMRC Basic PAYE Tools – FREE (but very basic payroll services)

For businesses with less than 10 employees, HMRC offers free payroll software that lets you manage basic payroll tasks. It can help you calculate the correct tax and national insurance contributions for each employee and send this information directly to HMRC.

It’s certainly a “no-frills” piece of software which cannot, for example, generate payslips. However, while it does little to streamline the payroll process, it will help to ensure compliance and that tax contributions are correctly calculated.

Compare Payroll Services Near You

If you are searching for a payroll services provider near you, you can use our free service to receive free payroll services quotes from them.

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