BPO, or business process outsourcing, has become f a buzzword in the corporate world over the last decade. 

In the UK, it’s estimated that 37% of SMEs outsource at least one business process already, and over half say they plan to outsource more in the near future. Data from Shortlister suggests that across all business sizes, 57% already instruct a third party to manage a certain core task. 

In fact, it’s estimated the BPO industry will be worth a staggering $72bn this year, with the most common processes including payroll, accounting, data management, social media, customer support and IT – all business-critical processes that a growing majority of firms of all shapes and sizes are entrusting to third-parties to manage on their behalf. 

Why? Many of the benefits come down to improving processes by outsourcing to a true specialist. Some firms prefer to keep a smaller employee base and partner with external firms. But for many, there is a clear cost benefit to outsourcing these key functions. 

So what about payroll, one of the most critical  business processess? How can you analyse the cost-benefit of outsourcing to a managed payroll service provider

Step one: Assess your existing process

The first consideration should be an assessment of your current payroll process and why you’re considering outsourcing in the first place. 

Is payroll taking up too much time and includes too many manual processes? Are frequent, costly errors being made, or is pay notreaching employees on time? Do you have to hire more payroll professionals in the near future to keep up with increasing workloads? Or, is your existing payroll technology creaking under pressure?

A yes to any or all of these questions should signify that a conversation about BPO could be a viable solution. 

Step two: Set your objectives

What do you want to achieve by outsourcing your payroll processes? 

For most organisations, this will directly come down to cutting costs by reducing the number of internal employees needed to manage the workload. 

Additional goals such as streamlining processes, reducing manual tasks and freeing up HR’s time to focus on value-building tasks such as engagement and culture-building are linked to cost-cutting. 

You then need to weigh that potential cost saving against  outsourced partners’ fees. 

Step three: Calculate in-house vs managed payroll costs

In our previous article, we explain how for an organisation of around 100 full-time employees, up to three payroll professionals earning just south of £100,000 a year combined would be needed to effectively and accurately manage payroll processes – from record keeping and managing sick days to pensions, taxes and HMRC submissions. 

Factor in payroll software costs, staff perks, training, recruitment costs, computers, desks, chairs, employer pension and NI contributions… The real-world figure could be more like £150,000 each year – or £1,500 per employee.

Conversely, a fully-managed payroll service can charge around £4-6 per employee per month. 

That’s a £7,200 annual charge vs up to £150,000. Granted, you would still need internal resources to manage some elements of your payroll combined with other HR processes. However, one employee in addition to an outsourced agency fee would still generate a 3x cost saving in this example. 

Step four: Factor in non-financial benefits

The benefits of outsourcing payroll processes aren’t purely financial. 

One of the critical issues all organisations face is compliance, and the larger you are, sometimes it feels the more regulations there are to comply with!

Managed payroll providers add more value by alleviating the majority of the legislative headache that paying employees and dealing with HMRC can deliver, reducing the fear that the business has inadvertently broken a business law. 

Within finance and payroll, legislation is constantly shifting regarding calculating pay, statutory payments and employment regulations. 

There are also security and technological capabilities to factor in here too. BPO, to a large extent, passes the buck of data security to your outsourced partner, who will have a keen focus on ensuring they’re up to date with the latest cyber security protocols. Outdated software is an important factor when it comes to data security too, something which not all organisations have the internal resources to manage and update appropriately.  

Step five: Contact Phase 3!

Once you’ve completed your cost-benefit analysis and decide it makes business sense to outsource your payroll processes, the next step is to find a trusted partner to work with. Thankfully, you’re already in the right place!

Phase 3 has been named CIPP’s Payroll Provider of the Year for the last two years running with accreditations for Cyber Essentials, ISO27001 for Information Security and ISO9001 for Quality Management.

Our specialist teams of accredited payroll consultants work as your external payroll department covering the full end-to-end payroll process. We ensure your payroll is accurate, in line with the latest regulations, and on time for employees. 

Learn more about working with Phase 3 as your outsourced payroll provider here.