Outsourcing your payroll?

It still remains a little known fact that schools are free to use, whoever and whatever organisation they wish, in order to process their payroll to ensure that they are complying with legislative and contractual responsibilities.

As with other employers, schools are also free to process using in-house provision to ensure compliance with the myriad of legislative obligations. This includes Pay As You Earn (PAYE) – which, from 6 April 2013, is facing significant change in the way in which employers need to report their PAYE information to HMRC, with the introduction of Real Time Information (RTI).

Other obligations include national insurance contributions; student Loans, statutory payments for incapacity to work, maternity & paternity along with adoption pay and leave, redundancy and attachment of earnings.

When you add in a similar list of employment legislation that impacts on the pay function (this article doesn’t hope to include the provision of HR support), there is clearly the need for an up to date and knowledgeable person or team to ensure that all staff are paid on time and accurately.

Historically payroll services have been provided by local education authorities but just as schools come in many shapes and sizes and with many and varied complexities, so too does the outsourced payroll solution.

It is highly likely that you already use the services of an accountant to fulfill your accounting requirements and if so, a logical starting point would be to talk to them. They may provide payroll services directly or alternatively they may have an arrangement with a specialist outsourced payroll service. In the absence of a personal recommendation, your accountant would always present you with a sensible starting point for researching your options.

Payroll providers come in variety of shapes, sizes with many varied complexities and can provide a range of different solutions. The main two options however are Payroll Bureau and managed service, explained below.

Payroll Bureau

In its simplest form you will control your payroll and employee information by providing this to the bureau by a pre‑arranged date and in a pre-agreed format. The bureau will then use their IT and software to process your payroll therefore this solution will require you to have some awareness of your payroll obligations.

The service will provide payslips for your employees along with reports that you will need for your accounting records and of course reports which enable you to make payments, not only to your employees but also to third parties such as HMRC, pensions companies, the CSA or Child Maintenance Service to name but a few. You will need to be clear from the out-set what level of support you will receive so that you know how much of the payroll administration will remain with you.

Managed service
There are two tiers: In a fully managed service the payroll provider manages all aspects of the payroll. Some providers offer partially managed services which require you to have some in house payroll knowledge and resource. If you choose the partially managed option you would need to be clear from the out-set what level of support you will receive so that you know how much of the payroll administration will remain with you. Which service you choose will very much depend on how much involvement you want to have and of course probably most importantly – how much you can afford. Whatever choice you make remember, the responsibility for the correct operation of PAYE always remains with the employer.

What to consider
When choosing your Payroll provider, it’s important to consider their experience with the specific requirements for your school. At a basic level all payroll obligations appear to be identical however be aware that different sectors offer up different technical challenges.

You must consider the information and documentation they will provide, as well as the cost of setting up the payroll and administering the system. What’s more, you should think about how often you will be invoiced and if there will be any hidden costs, such as re-run charges due to receipt of late information.

Bear in mind the ease of scaling the service, for example, if you take on more employees and if the IT package can be tailored for your needs.

Lastly, consider if your own software is compatible with that used by the payroll provider; this is important if you want to take full advantage of technology for interaction between the payroll operations and your accounting process.

Know your contract

Ensure that you fully understand the contract agreed with the payroll provider. Remember that even if when an outsourced payroll provider is used the employer is still responsible for ensuring that all statutory obligations are met. You will therefore need to be clear on certain things. These include being sure the payroll provider calculates tax and deductions accurately from the information supplied and makes all submissions that are required. You need to agree that they’ll ensure all your statutory obligations in respect of your payroll are met. What’s more, you need to be clear that if they are at fault for failing to meet these obligations and you are charged a penalty, that they reimburse you.

You will also need to be clear who will keep records that are specified by HMRC, and specify that some provision is put in place for any future expansion of the service that you may require.

And of course, don’t forget to ask what happens if you are not happy with the service that you receive – what is their complaints policy and how much notice do they need?

So, what now?
This article has sought to provide you with a whistle stop tour of options that are available to your school when considering your payroll provision. Whatever choice you make however, it is critical to ensure, that the individual or team that provides you with your payroll service is knowledgeable, experienced, qualified and importantly, approachable.

A good working relationship with your payroll provider has always been critical. However, as the clock ticks towards 6 April 2013 when employers will need to begin submitting PAYE information to HMRC in Real Time (RTI), the need to ensure that you are communicating in a regular, timely and accurate manner with your payroll provider has never been more important.

Further information