Being in the business of offering payroll outsourcing in the UK gives a very blinkered view of global payroll, so I’ve taken some time to look at payroll over there on ‘the other side of the pond’. I’m taking a look at the similarities, the differences, and more importantly what clients need, and should look for, when considering outsourcing payroll.
We actually have quite a lot in common!
In the UK, we know Her Majesties Revenue and Customs (HMRC) well, and our colleagues in the US have the IRS, which does a very similar job.
British employees are taxed at 20%, and higher earners at 40% increasing to 45% for super earners. I’ve discovered that the US has a similar variance in its tax rate. Tax is deducted at up to 39.6% which is standard across all states with the rate increasing, based on earnings.
Here in the UK we also deduct National Insurance on earnings above a baseline, at 12%. This is similar to Social Security and Medicare.
There are other similarities like minimum wage legislation, and national holidays and bank holidays (UK). But a discovery that each state in the US has its own unique legislation must add complexity to an already complex subject. The UK has new pension legislation and payrolling of benefits, so, no matter which side of the pond you’re on, becoming a new employer can set you on a path that can involve fines from the IRS or penalties from HMRC.
But new or existing employers have the same three reasons for thinking about outsourcing:
Time. Skills. Cost.
My new business clients feel like they don’t have enough hours in the day, and extra time to learn all the ins-and-outs of legislation just isn’t something that’s going to fit. If they initially take care of payroll themselves, it’s not long before their time becomes way too valuable to be crunching numbers. Whether you’re from London or New York, learning and understanding the finer points of the law, particularly when it comes to the local legislation is crucial. Penalties for errors in the UK can be significant and I can’t imagine the IRS being any more lenient. And so whilst many employers try to run payroll inhouse, there don’t have to be many fines to make the cost of outsourcing your payroll seem like the financially sensible option.
So what’s important to an employer when looking for their outsource partner? It goes without saying that your payroll service provider should be qualified and experienced, and checking that they’re registered with their governing body and up to date is a good way of ensuring that the basics are right.
I’d also say the relationship is one of the largest factors, with a good dose of trust and integrity thrown in. Payroll service providers are in it for the long hall, and as a new client you need to feel that you can communicate clearly and honestly with them. Without a doubt there are going to be times when things don’t quite go to plan and being able to discuss issues and resolve them, without the business relationship breaking down is invaluable. So speak to potential payroll service providers, get a feel for their nature and find someone you fit with. Not many business decisions should be made with your ‘gut’ but you’re buying a service, so relationship is key here!
Businesses all have different needs, and depending on the size of your business, what you do and how many employees you have, you’ll have different ideas of how you want payroll to work. You might be looking for a ‘bare bones’ payroll that’s enough to keep you compliant, or possibly something more complex. Whilst the industry is changing and so are the products available, some payroll providers are going to be more flexible than others. So if you plan on growing your employee headcount, ask potential providers about their flexibility. If you start off with the simplest of payroll services, but have plans in the future to grow and think you’ll want an online employee portal to minimise administration and keep employee documents available online easily, ensure the provider can offer what you’ll need as you grow.
And whilst for some businesses it won’t be a consideration, cost should be something that’s made plain by the provider from the beginning. Years ago there were separate charges for documents and reports, year-end processing, putting things in the post, and all manner of chargeable tasks, but there isn’t a good reason for that being the case these day. Software is integrated and documents and reports are emailed. So ask about extra charges, hidden costs and how long the price you’re quoted is good for. Whilst they’re not huge, continually having your payroll provider invoicing for things that ‘are in the small print’ eats away at the good will in the relationship. You are trusting this company with sensitive information, you should be able to trust them to be open about their fees too.
So, even with all that in mind, outsourcing does come out as the good sense option. You’re running a business, you’re the expert in your field and you do what you do really well. Use your time and energy to drive your business, and let the number crunchers sit in the background and take care of business