The Why and How of Payroll Outsourcing: A Complete Guide for Accountants

An article by Time Doctor on the outsourcing trends for 2023 estimates the HR outsourcing market to grow over $19.38 billion in 2023.

Outsourcing has been around for a long time, but its scope has risen widely in the last few years. Since HR is among the most significant departments in a company, outsourcing part or entire HR and payroll functions is common.

Payroll outsourcing is, thus, one of the major trends for accountants to look out for in 2023. With challenges such as the Great Resignation and the ongoing recession facing the accounting industry, outsourcing is the only way forward for small and medium-sized accountancy practices looking for quick growth and scalability.

In this blog, we will explore the why and how of outsourcing payroll and how it can benefit growth-focused accountancy firms.

Why Outsource Payroll?

A QXAS survey of sixteen UK accounting firms in 2021 shed light on the accounting industry’s readiness for payroll outsourcing. Of all the partners and accountants surveyed, 87% confirmed that they already outsourced or planned to outsource their payroll in the coming years.

The survey further revealed that almost three-quarters of the accountants (81%) who outsourced payroll saw a guaranteed spike of 5% – 40% in their profit margins.

Evidently, payroll outsourcing services offer numerous advantages to accountants. Let’s look at some of them in detail.

Hassle-free payroll: Payroll is a mundane and cumbersome job. This is what makes it one of the most outsourced services by accountants in recent times. Since payroll involves constant compliance changes, technological evolution, complex calculations, and employee management, outsourcing it to skilled and certified professionals removes the hassle from it.

Technological advantage: As mentioned above, payroll is subject to technological evolution. Catalysed by emerging technologies such as cloud computing and AI, payroll is set to undergo a massive transformation in the coming years.

Since small and midsized accountancy practices have limited resource-based and financial capabilities to implement new technologies, outsourcing payroll services can be profitable. Outsourcing allows you to hire technically-sound staff from any part of the world, and your service provider takes care of all the groundwork, giving you an edge over competitors.

Data security: Accountants are often concerned about data security when outsourcing. Since payroll processing involves sharing clients’ confidential employee data, security is crucial.

In order to prevent any data security risks when outsourcing, accountants must choose their outsourcing partner wisely. Leading outsourced payroll providers UK comply with all the necessary security standards, such as GDPR and ISO 27701. They also use highly secure servers for data transfer and have their resources sign NDAs to mitigate any data risks.

Higher profits: Outsourcing is beneficial for practices that already offer payroll as a service and those that don’t. With outsourcing, you can add payroll to your offerings without doing the work yourself. This opens a new revenue stream for your firm and can help you make more profits.

Moreover, payroll services for small businesses help improve practices’ efficiency and productivity and streamline processes using the latest technology. In the long run, this can yield amazing results for firms and make payroll a highly profitable service, as the QXAS survey shows.

How to Outsource Payroll?

Since payroll services outsourcing offers multiple competitive benefits to growing accountancy firms, it has become one of the most sought-after services in the accounting industry. If you are not a part of this vast majority yet, it’s never too late to hop on to the outsourcing wagon.

But one question we commonly encounter from accountants is – How do you outsource payroll?

If you are a first-time outsourcer, the process can seem quite confusing and overwhelming. So, let’s decode it step by step.

Step 1 – Research: Research is extremely critical to the outsourcing process. From considering your firm’s goals, conducting market research, and analysing the scope of outsourcing in your industry, research is fundamental to determining your outsourcing requirements.

List your practice’s pain points while processing payroll and evaluate where you need help. Look at what your competitors are doing and how it impacts their practice. Lastly, assess if outsourcing can resolve your issues and help make payroll profitable.

Step 2 – Find an outsourcing provider: The second most important step in the outsourcing process is finding the right partner from a pool of outsourced payroll providers UK. When you outsource payroll, you put your firm’s success and reputation at stake. Therefore, accountants must invest a lot of time and effort in researching the right firm to partner with, interviewing potential outsourcing partners, and conducting adequate due diligence.

The right outsourcing partner is the one that understands your practice’s goals and requirements and tailors its services to your needs. In order to find the right provider:

• Begin by examining multiple firms
• Have a look at their services, pricing and engagement models, technological proficiency, and security standards in detail
• Refrain from choosing a provider solely based on pricing

Lastly, conduct adequate due diligence and outsource to a top-tier payroll outsourcing provider like QXAS that ticks all boxes.

Step 3 – Set clear objectives: After finalising an outsourcing provider, it is time to define the objectives. Before you sign an SLA, list each firm’s roles and responsibilities and specify the association’s objectives.

Step 4 – Onboarding: The final step in the outsourcing process is onboarding your extended team. Whether you have onshore or offshore staff joining your team, it is important to onboard them correctly. This sets the right mood for the association and gives your team a direction to begin work.

Read our detailed guide on onboarding outsourced payroll staff here: Payroll Outsourcing Fundamentals: How to Ensure Smooth Onboarding of Your Offshore Staff

Summing Up

Per the QXAS survey, 93% of accountants agreed that outsourcing helped them and their team save time during the work week. This additional saved-up time was invested in various areas such as client servicing, upskilling, advisory services, and critical business tasks.

As the payroll function undergoes rapid changes with technology and compliance, outsourcing is a highly profitable option for small and medium-sized practices. It helps firms battle staffing woes, improve processes, attract new clients, and stay ahead of the competition.

If you are looking for payroll outsourcing support for your firm or want to explore the service in more detail, book a free consultation with our outsourcing expert today or reach out to us at +44 208-146-0808 and [email protected].