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Should employers outsource payroll?

Updated: Mar 24, 2019

Outsourcing payroll can relieve the burden for employers, but what are the other benefits to using a professional service?

Salary optimisation - directors' remuneration is an important topic in the context of payroll. How a company administers payroll for its directors', has a

direct impact on personal tax savings, and company-related employment taxes. Directors' should take the vast majority of their remuneration in the form of dividends to minimise their income tax liability, however - a token salary is required to enable directors to mitigate their tax bill whilst still qualifying for full state benefits upon retirement. The amount of salary to put through your payroll system for each director, needs to be determined each year as the 'primary earnings threshold' (PET) changes. We recommend paying directors' a salary through payroll up to the PET level for each relevant tax year, and recommend declaring dividends for the remainder for their remuneration. Read our section on Payroll & PAYE for more details:


Record-keeping synergies - operating a system of payroll requires knowledge of payroll record-keeping and accounting. PAYE & other employment tax liabilities must be appropriately accrued, reported and settled within your accounting records (usually on a monthly basis). By outsourcing payroll, many clients benefit from record-keeping synergies (efficiencies) by having an integrated bookkeeping and payroll system, managed by their accountant. Allowing your accountant to manage the record-keeping process end-to-end, can remove a significant amount of time from the annual accounts preparation process, as transactions are being recorded within an integrated bookkeeping and payroll system. This time-saving often translates into a cost saving, since annual accounts preparation fees are time-based.


Cost savings - in addition to time-savings, an outsourced payroll service will often be cheaper than an in-house system. This is because professional service providers have access to payroll bureau systems, which allow them to host multiple clients under a single software licence (often with enhanced/premium features). Even with a professional services mark-up for the services rendered, paying for your payroll on a 'per employee' basis, is often far cheaper and a software licence for your own 'in-house' service.


Knowledge and expertise - most small businesses will want to outsource their payroll for the purposes of ensuring accuracy and compliance. Paying employees via payroll requires accurate processing of information and data protection laws must be complied with. Accurate 'Real-Time Information' (RTI) must also be submitted to HMRC. By outsourcing the process to an expert, clients gain piece of mind when it comes to payroll compliance.

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