There are benefits and risks associated with outsourcing a key business activity, and running payroll is no different. 

We wrote recently about the benefits of outsourcing payroll, ranging from saving time and improving efficiency to some serious cost savings and compliance-related benefits too.

For most organisations, these benefits far outweigh any risks associated with switching from in-house management to an outsourced payroll provider

However, there are some potential perils that are worth noting before you make the switch. 

Onboarding headaches

The most time-consuming part of switching to an outsourced payroll provider should be the onboarding stage, but even then, your chosen provider should be doing the majority of the heavy lifting!

It can take a little time to map out what the onboarding process will look like and manage the switch. However, an experienced provider will have their own tried-and-tested processes to ensure a smooth transition. 

If you’re a little nervous (and it’s natural to feel so!) about the first few payroll submissions after outsourcing, you can also run a parallel pay run to ensure that the figures match up.

Data security

During onboarding, but also a critical ongoing concern, the security of your company and personally-identifiable employee data is paramount at all stages of the project lifecycle. But remember, that would be the case whether you’re outsourcing or managing payroll in-house. 

GDPR and data security aren’t everyone’s favourite topics, but your new payroll provider should make it their business to know the legislation inside and out and will be able to guide you as to the correct processes to follow. 

It’s incumbent on your organisation to do its own research to ensure the provider you choose has the right accreditations, or at least relevant experience, service breadth and positive reviews, to suggest they really do know what they’re doing when it comes to handling data. 

At Phase 3, for example, we offer a dedicated HR, payroll and finance data migration support service to support clients with the extracting, transforming and loading of critical data from one platform to another. 

Payroll errors

Organisations make mistakes every single day, but when it comes to payroll, your employees expect to be paid accurately and on time… every single time! 

It’s natural for organisations to gatekeep these critical functions as the natural tendency is to trust yourself to carry out a task correctly over someone else. 

But when it comes to managing payroll, often the reverse is true. In fact, one recent study found that, on average, companies with 500 employees waste £150,000 a year through payroll errors. Meanwhile, outsourcing to a specialist provider typically results in 98% accuracy. 

That’s a huge potential (and let’s face it, expected) benefit of removing your payroll headache and letting someone else deal with it. 

Inexperienced support

When you outsource anything, you want to know that the people managing that work are true experts in their field. 

One issue thatsome organisations face when outsourcing their payroll function is that the new provider lacks the expertise within their team to properly support your organisation. 

Managing payroll requires a deep and far-reaching understanding of payroll, HR, legislation, compliance, data, pensions, the latest tax rates, filings, statutory payments, and so much more.

Read more: Is outsourcing payroll cost-effective? 

A good way to check how experienced your potential provider really is, is to do a bit of snooping. How many senior team members do they have on their ‘meet the team’ page? Are they regularly sharing insightful content? Are their team leaders also thought leaders? Have they won recent industry awards or hold process and standards certification? 

A great payroll company will invest in all these areas and showcase them every day, because they know it’s critical to being the best possible provider for their current and future clients.

Growing pains

Switching suppliers or outsourcing payroll for the first time can cause some headaches, so it’s not something you’ll want to be doing too often. 

One issue which successful companies can experience is that their chosen providers can’t cope with a rapid increase in workload. 

What that means is if your organisation begins to grow and hire more people, your outsourced payroll provider may not have enough resources internally to dedicate to your account. 

The outcome? Potential for increased errors, delays in onboarding new employees, taking too long to get back to your urgent questions, and even hampering your own growth journey. 

Just like when you outsource to any company, you want to check that their size and capacity align with your own, but that they too can grow if you do too.

Choosing the wrong supplier

Ultimately, all of the potential issues that can arise from outsourcing your payroll function can be avoided if you choose the right payroll provider from the outset. 

Download now: Managed payroll vs in-house team?

Spending some time doing your own market research, digging into your preferred suppliers in more detail – and asking a lot of questions! – will save more time than spent down the track. 

But, if we may say so ourselves, if you are considering outsourcing your payroll to a specialist company, then you’re already in the right place!

At Phase 3, we’ve been named Payroll Provider of the Year by CIPP for the last two years running and our experienced team are all CIPP-accredited consultants. 

We help hundreds of companies every day with their payroll, HR and finance requirements – from specific consultancy to being their entire outsourced payroll department. 

Learn more about how we work with organisations just like yours and our outsourced payroll service here.