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What to know about outsourced payroll services in 2023

19 Jun 2023

Ask an accountant about outsourcing payroll to clients and you will usually get a grimace.

This isn’t just an intuition of mine. We recently conducted a survey to 313 accountancy and professional service firms. Perceptions of offering outsourced payroll services were quite negative - just 12% saw it as a profit-driver, while 11% saw it as a “necessary evil” and 35% thought of it as a way to attract and retain clients, not drive revenue itself.

In other words, while a lot of the firms offered outsourced payroll services, they seemed to do so begrudgingly. I think this is misguided.

Don’t get me wrong, there are some real challenges to payroll - particularly in the UK. But as a payroll professional myself, I know it can also be exceptionally rewarding and profitable. Our survey results explain why. Here are some of the highlights.

The bad news: Pay runs takes far too long in the UK

One of the most startling findings from our research concerns the average length a pay run takes.

The median time from our respondents was one whole day, with 59% saying it took one day or longer. One in ten said it took either four or five days. No wonder people see it as a headache.

We know that this statistic is bad because we completed the same survey in Australia and New Zealand. In that market the median pay run took less than two hours. Indeed, 71% of respondents there said a typical pay run took two hours or less, compared to just 8% of those in the UK.

What’s behind this? Undoubtedly part of the picture is the jumble of shifting UK regulations, which are especially liquid as we manage our way out of the European Union. But another big factor is software.

Software-driven automation is crucial to the future of payroll. That doesn’t mean replacing the human touch - but it does mean cutting down on those repetitive tasks that make pay runs such headaches. There’s no reason to spend a whole day on pay.

Cloud software can do more

I love cloud payroll. I remember the bad old days of waiting for a new software update to take in changes to legislation, or watching a patch slowly install before I could get a crucial pay run out. Cloud software like Employment Hero Payroll fixes all those problems. And they mean I can work from anywhere with an internet connection.

The survey showed that professional service firms do generally value the cloud, with 77% agreeing that cloud applications saved time with automation features.

But things could definitely be better. The average firm used six different cloud applications - which could lead to a lot of double-handling of data and issues making all the different services talk to each other. And serious concerns remain for some firms, particularly ones working with sensitive clients. Just over a quarter (26%) said they were concerned about data privacy on cloud applications, while 24% cited security as a concern. There’s also just some friction inherent in changing the way you do things - the two most commonly cited gaps in cloud software were user training (29%) and client training (28%).

In other words, embracing change can be tough when things are basically working out. But that long pay run - and the fact that so many see payroll as a headache - shows things aren’t really working out.

Outsourced payroll services are a profit driver

Despite issues with long pay runs, shifting legislation and multiple applications, our research suggests offering outsourced payroll services drive profits.

Outsourced payroll providers earned on average £12,639 or 17% more from each client than firms that didn’t offer payroll. Across a whole professional services firm this difference is worth millions in revenue each year.

The average firm in our entire survey earned just under £23m in revenue each year across 276 clients. But the firms that offered outsourced payroll services earned more - an average of just under £25m - while firms that didn’t offer outsourced payroll services earned just £19.7m.

This shows that offering outsourced payroll services isn’t just a nice to have. It’s essential to attract more clients and achieve the economies of scale needed to drive huge profits. Don’t miss out.

For more information about Employment Hero, you can visit their partner resource centre page here.