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Top 10 Tips when outsourcing payroll

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Phase 3 has offered outsourced payroll services for over seven years now and I have worked with payroll and bureaus for most of my working career. Here are my top tips when selecting a payroll supplier if you are considering outsourcing your payroll.

1. Check the Service Legal Agreement (SLA)

Our SLA is provided as a checklist to clients at the start of payroll discussions – this allows a tailored service to be created for you as the client. Review the detail of the SLA carefully and inspect in particular detail:

  • Response times to queries
  • The rigidity of the payroll calendar
  • The level of nominated contacts you have access to
  • The service ‘uptime’ if the provider is supplying a solution
  • The degree of accuracy the provider is quoting (and how that calculation is derived)
  • The solutions used to deliver the service and if they are HMRC accredited
  • The complaints procedure
  • What is not included in the SLA (e.g. out of cycle payments/advances, additional runs)

Many SLAs focus on the perfect payroll, but for those of us who work in payroll, we know this isn’t always the case. For example – if the team forget to provide a bonus spreadsheet, or pay awards are agreed after the effective date – what is the process (and cost) the supplier will use to correct those payments and does that meet with your expectations? Carefully identify what will happen if mistakes are made and if there will be any nasty surprises on the invoice at the end of the month.

2. Determine if you wish to white-label the service

For some employers, the thought of outsourcing payroll is hindered by the thought that their employees might be concerned about a third-party running payroll. This is often overcome with a ‘white labelling’ of payroll services. This usually involves the email address and telephone solutions being identified as your own (with forwards and redirects working behind the scenes) but if this is important to you make sure:

  • Supplier logos are not seen anywhere on the solutions
  • Workflow emails don’t give a different email address from outside your organisation
  • Telephones aren’t answered with “Hello, Name of Bureau, James Speaking” – a common mistake!

In my opinion, honesty is the best policy with employees when payroll is outsourced, but if white labelling is important, make sure it is done correctly.

3. Check what questions the supplier is asking

woman working at desk

This almost seems like Inception – questioning the questions! The reason I recommend this is that you need to know that your new provider is asking the important questions about things that differ in payroll, for example:

  • Are they checking out who the ‘VIPs’ are?
  • Are they checking out those problematic employees who seem to have issues month on month?
  • Are they checking about pension scheme setup, absence scheme entitlements, how you operate Maternity pay etc?
  • Which third parties you make payments to and if they will be responsible for making the payments.
  • And, most importantly of all – are they preparing the BACS files? If so, have they asked for example formats and the ability to send from your bank account? (This is a real issue towards payday if the supplier suddenly can’t make the payment to employees).

A supplier should always ask what the contingency plan will be should there be a material failure of the service.

4. Understand the level of service you will receive

This is incredibly important to manage your own expectations. Phase 3 offer a fully managed payroll service – and what we mean by that is we become your payroll team, your payroll manager and your payroll strategist. It is important to check out with the supplier what they will offer – for example, is this a finance-based service where the team will process the input, the payroll and then give you output files?

A payroll service should offer the strategic support you need – including regular support calls, customer meetings and offer to have regular project calls to discuss what is on the horizon in the business to make sure they are ready for any impending changes.

5. Check references – and more than one!

Checking that you aren’t a new payroll provider’s first client, largest client or smallest client is really important. If the testimonials on the site don’t relate to actual payroll services – be on the lookout. For each proposal Phase 3 produce we automatically provide three references – of equal size, scope of service (i.e. fully managed or BACS bureau only) and a similar value of contract to provide you with assurance that the supplier has experience of working within your sector, your size and also provide assurance that they are experienced with payroll and not just starting out. All suppliers need first customers – but should be open and honest if you are in this situation.

6. Complete due diligence

person working at computer

Complete due diligence is important not only with references but also with your supplier – what is their financial standing? Do they have CIPP accreditation for their team? What are their disaster recovery plans? What are their business continuity plans?

These may seem like simple questions but they are also vital and you would be surprised at the number of customers who don’t ask them!

7. Understand what isn’t included in the cost

If your costs aren’t all-inclusive, what are the costs that aren’t included? Common items include:

1. Postage (fair enough!)
2. P11D
3. Additional charges for over or underpayment calculations
4. Additional pay runs
5. Transaction charges for new joiners
6. Additional payslip print costs

These might seem like paperclips but over the year, in payroll, these can all add up – so make sure that you ask for a whole-of-life cost.

8. Discuss their project plan

As you start the decision-making process, ask the supplier their level of project support for taking over your payroll. What does the project plan look like? Does it take into account time for handover from your team, the additional time it may take to understand your current processes and more importantly does it take account of improvements they would like to make to your payroll processes?

9. Have a go/no-go decision date in the diary

If you are conducting parallel runs or dummy runs with your new provider, make sure a go/no-go decision is in the diary. This means that you have the option to roll back the decision and maintain the in-house payroll provision if you aren’t happy with the suppliers’ performance. We have supported many clients who have been partway through implementations with the new provider and realised that promises that were made during the sales process were not actually delivered upon. Whilst references and due diligence should negate the risk of this happening, if there are concerns it is safer to have the no-go date in the diary and agreed with the supplier before the payroll run.

10. Check the terms and conditions

The last thing you want is to be stung with hidden charges, or contractual clauses which will cause issues down the line – if legislation changes, for example, will your supplier charge you additional amounts? Are there lengthy notice periods or clauses that aren’t balanced or fair for both you and the supplier – as with all terms and conditions, have your legal angles covered, scour the terms, and highlight any amendments you desire!

As expert payroll consultants, Phase 3 are perfectly placed to help you and your business. If you are looking for support with outsourcing your payroll, talk to our customer success managers who have experience in supporting many clients transition from in house to outsourced payroll.

For more tips, advice, and news, make sure to visit our blog.

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