Choosing payroll support that fits your small business
Running payroll in-house can take time, but outsourcing it does not transfer your legal duties as an employer. Compare the work each option covers, how information will be handled and what you will need to check each payday.
By Daniel Foster · · 4 min read
For a small business, payroll is more than calculating take-home pay: it can include submitting reports to HMRC, providing payslips and handling starters, leavers and deductions. You can use payroll software yourself or pay a bureau or accountant to run the process. The right choice depends on your pay arrangements, the support you need and how much checking you can manage internally. Here is what to compare before appointing a provider, and how to monitor the service once it is in place.
What should a small-business payroll service include?
Start with the tasks you need covered rather than the label on a provider’s package. Payroll services may include calculating pay and deductions, producing payslips, sending reports to HMRC and preparing year-end tasks. Some providers also offer to keep employee records or arrange payments, but the exact scope varies. HMRC’s guidance on choosing how to run payroll advises employers to consider how much support they need.
Ask for a written description of what is included, what costs extra and what remains with you. In particular, clarify who will:
- collect and update employee information;
- process regular pay, overtime, bonuses, statutory payments and deductions relevant to your staff;
- send the required payroll reports to HMRC;
- prepare payslips and any agreed payment files;
- handle year-end reporting and employee queries;
- correct errors and explain any additional charges for out-of-cycle work.
If you are also deciding which business functions to outsource, the broader business services selection process can help you compare responsibilities, service scope and contract terms.
Should you outsource payroll or run it in-house?
Running payroll yourself with suitable software gives you direct control over the process, but someone in the business must keep employee information current, process each pay run and handle reporting and records. A payroll bureau or accountant can take on agreed administrative tasks, which may suit a business with limited internal capacity or more complicated pay arrangements. Outsourcing does not remove the need for an internal contact who can provide accurate information and approve changes.
Compare the real workload, not just the headline fee. Consider how often staff are paid, whether hours or earnings vary, how many people can cover payroll internally and what happens when the usual payroll contact is away. For related financial administration, small-business accounting support may overlap with payroll in some areas, but confirm exactly where one service ends and the other begins.
What should you check before appointing a provider?
Ask prospective providers to walk through a normal pay run and a less routine case, such as a new starter, a leaver or a corrected timesheet. Their answers should make clear the cut-off for submitting information, who approves the final figures and how quickly an error can be investigated. Ask how you will access payroll reports and employee records if you change provider.
Check the contract for the service boundary, fees, notice period, data access, confidentiality arrangements and support when something goes wrong. Confirm which tasks the provider will submit to HMRC and which payments your business must make itself. Do not assume that a provider will transfer money or monitor HMRC notices unless those tasks are explicitly included.
How do you manage the handover and each pay run?
Before the first run, agree a named contact on each side and a secure route for sending employee data. Set an internal deadline for submitting hours and changes that leaves time for checks before payday. Make a clear record of who can approve new starters, bank-detail changes and adjustments to pay.
HMRC says employers normally report employee pay, payrolled benefits and deductions in a Full Payment Submission on or before payday, unless an exception applies. Make sure your agreement explains who prepares and submits that report, and how your business can confirm it was sent. Keep access to HMRC services and a copy of the payroll output so you can review the information rather than relying only on a provider’s confirmation.
How can you tell whether the service is working?
Review each payroll run before or promptly after payment. Check a sample of payslips against approved hours, salary changes, deductions and agreed adjustments; verify that starters and leavers are reflected correctly; and reconcile the payroll totals with the amounts paid and reported. Ask for a clear explanation of any difference rather than carrying an unexplained adjustment into the next period.
HMRC requires employers to keep payroll records, including pay and deductions, reports and payments to HMRC. Its guidance says PAYE records must be retained for three years from the end of the tax year they relate to. Agree how you will receive and store those records, even when a provider keeps copies on your behalf. Use recurring corrections, late information or unclear charges as reasons to review the process and responsibilities with the provider.
Frequently asked questions
Does outsourcing payroll transfer my legal responsibility to the provider?
No. HMRC says the employer remains legally responsible for PAYE tasks even when a provider carries them out. Outsourcing can delegate administration, but you still need to give accurate employee and pay information, make sure HMRC is paid and keep the required records. Agree who checks each payroll run and how errors or missed deadlines will be raised.
What information does a payroll provider need from my business?
The provider will need employee details and the information required to calculate each pay run, such as pay, deductions and relevant changes. Agree how starters, leavers, hours, absences, bonuses and corrections will be submitted, who can authorise changes, and how sensitive information is transferred and stored. HMRC places responsibility for collecting and keeping employee details on the employer.
How long must a UK employer keep payroll records?
HMRC says PAYE records must be kept for three years from the end of the tax year they relate to. This includes pay and deduction details, reports to HMRC, payments to HMRC and records such as leave and sickness absences. Check whether other record-keeping rules, including those for minimum wage or holiday pay, require additional evidence.
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