The cost-benefit analysis of managed payroll services

In the business management and HR sector, payroll is one of the key processes that helps an organisation run at its best. However, ever-changing regulations and the risk of costly mistakes can make the process challenging.

For many small to medium-sized enterprises (SMEs), outsourcing payroll has become a way to enhance efficiency. In 2023, up to 61% of British businesses used a managed payroll service. The reason is simple: to save time and money. 

In this article, we conduct a comprehensive analysis of managed payroll services and explore how they could help your business.

The benefits of managed payroll

Time management

Time is precious for business owners, and managing payroll is a time-consuming affair. Investing in managed payroll services, allows you to outsource these tasks to a team of professionals. 

When surveyed, almost a quarter of businesses said they outsourced payroll for increased efficiency. External expertise means tasks are completed quickly with less room for human error. This streamlining of the payroll process means a reduced workload for administrators and a notable increase in productivity.

Consider the scenario of an SME grappling with in-house payroll management. The internal team invests valuable time in data entry, regulations and compliance tracking. Contrast this with the efficiency of a managed payroll service provider. These experts navigate the complex payroll landscape with finesse, swiftly and accurately completing tasks. This leaves your internal team with time to focus on revenue-generating activities.

Resource management

In-house payroll management incurs a myriad of costs. Consider the expense of an in-house payroll department: salaries, benefits, training and software. Outsourcing brings predictability, allowing businesses to allocate budgetary resources more strategically. The allure of outsourcing lies in the consolidation of these costs into a predictable, regular fee.

Moreover, managed payroll providers often leverage economies of scale. By spreading the costs of cutting-edge technology, compliance expertise and security measures across multiple clients, even smaller businesses can access sophisticated payroll solutions without the financial burden.

Risk mitigation

Payroll errors can lead to penalties, disgruntled employees and damaged reputations.

In the case of smaller businesses, lost paperwork can mean serious issues (25% of businesses still use a pen and paper to track finances). Implementing managed payroll services acts as a financial safety net. With dedicated safety systems and robust technologies, they can catch errors before they escalate. Their expertise in navigating the intricacies of tax regulations and compliance can also reduce mistakes. This not only protects a business’s bottom line, but also safeguards its reputation.

It’s a known fact that problems with payroll lead to employee distrust. When surveyed, 35% of employees said they would look for another job after only one payroll error. With 55% of employees stating that work is more intense and demanding, ensuring staff are paid correctly and on time will help retain talent.

A cost-benefit analysis

Here is a scenario to illustrate the financial disparities between in-house and outsourced payroll management. Consider an SME with 50 employees, grappling with the complexities of payroll processing. The in-house option requires a number of ever-changing costs to calculate and pay: personnel salaries, training costs, software licences – and the potential cost of penalties due to errors.

On the other hand, outsourcing presents a predictable monthly fee covering all payroll-related tasks. When these costs are tallied and compared over a year, the financial benefits of outsourcing become evident. 

The reduction of potential penalties – avoided by diligent compliance management – alone justifies your investment. Ultimately, the decision is more than a financial consideration. It’s a strategic choice.

Need assistance with managed payroll?

If you want to transform the way your organisation handles payroll, using a managed payroll service might be the answer. At Phase 3, our managed payroll services are flexible to meet the holistic needs of your business, from end-of-month support to data inputting to fully managed services. To find out more about our services, contact our award-winning team today.

Laura Lee image
Written by : Laura Lee

Laura’s role as Head of Marketing sees her continually looking for new opportunities to tell the world how great Phase 3 is.

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