With ever increasing pressure on business resources, the need to deliver efficiency throughout all business processes has prompted continual growth in demand for outsourcing by UK businesses as companies leverage the cost benefits and technical expertise that outsourcing affords while liberating resources to focus on key strategic objectives. The uptick in SME adoption of outsourced business processes has been particularly pronounced as demands for higher efficiency continue to widen the gulf between limited in-house capabilities and robust outsourced solutions.
Over the last decade, outsourcing in the UK has continued to trend upwards as the benefits outstrip the advantages of in-house non-strategic operations. The opportunity to take advantage of enterprise level software solutions as well as leveraging industry expertise and maintain regulatory compliance, not to mention cost effectiveness and liberation of in-house resources in an increasingly agile business environment, have all fuelled the continued growth of the sector and are projected to continue to do so for some time to come.
General Outsourcing Trends for UK Businesses – Key Findings
Advances in enterprise technologies have driven adoption of outsourcing as building infrastructure in-house to deploy such technologies can be prohibitively expensive.
The outsourcing of managed payroll and HR services is rapidly rising. The rise is largely attributed to increasing legislative complexity and a necessity to focus on core strategic projects in order to maintain competitiveness in the market. 47% of EMEA organisations now completely outsource payroll.
Factors Driving the Growth of UK Business Process Outsourcing
Cutting Costs and Focusing Resources on Core Strategic Goals
A recent IRIS customer survey cited “saving money” as the number one reason for outsourcing certain business processes. In the world of business this is always likely to be a key factor and given the current economic climate it’s no surprise that 78% of EMEA procurement leaders are focused on cost reduction as key objective.
By outsourcing non-strategic business processes such as payroll, companies reduce the need to hire and train in-house personnel as well as purchase and maintain software to operate the services which could, in-turn, lead to a reduction in operational costs.
For example, factoring in the average payroll manager’s salary in the UK which currently stands at £29,000 and a squeeze on skills in the labour market; it’s easy to see why outsourcing of certain business processes such as payroll is an appealing strategy.
Outsourcing to a managed payroll specialist allows a business, of any size, to benefit from industry expertise and enterprise level solutions without the excessive price-tag while simultaneously re-allocating resources to achieve business outcomes.
Risk Mitigation – Legislative Changes Require Processes to be Revised and Adapted
With ever-changing regulatory and legislative obligations, in-house dependence exposes businesses to higher risk of punitive measures through non-compliance.
In 2013 HMRC introduced the real time information (RTI) component of pay as you earn (PAYE), requiring businesses to submit tax information and reports every time an employee is paid rather than annually. This led to a marked uptick in payroll outsourcing adoption by businesses in the UK, with companies choosing to leverage industry expertise to moderate the risk of penalties through non-compliance.
Pension auto enrollment is the one of the latest additions to the increasingly complex payroll landscape. The ability to outsource payroll management to knowledgeable industry experts rather than hire and/or re-train in-house personnel and adapt current, or create new, systems to cope with these changes poses clear benefits.
With the integration of GDPR into data protection regulations this year, the focus on the privacy of personal data poses a potential mine-field for in-house operations where storage and security of employee data is required.
In comparing the likelihood of non-compliance with and without outsourcing, recent figures suggest companies that process payroll in-house receive three times as many fines and/or penalties for non-compliance compared to those who adopt an outsourced managed payroll solution.
With Brexit posing a continuing uncertainty factor for businesses both in the UK and abroad, we can expect significant legislative changes in the years to come, adding to the growing complexity of both strategic and non-strategic business processes. This is likely to spur increasing adoption of outsourcing where possible to not only maintain compliance but also to free up resources to focus on key business goals.
While larger enterprises, with more robust in-house processes may be able to weather the storm of increasingly complex legislative requirements, SMEs will find adapting to the ever-changing regulatory landscape more difficult as policy changes place increasing demands on in-house expertise and resources just to maintain compliant procedures.
Leveraging Professionally Designed Enterprise Level Solutions – Advances in Technology Present a Widening Gulf between In-House and Outsourced Efficiency
As technology develops, in-house – especially split-focus – departments are facing an ever-widening gulf between the tools and technologies available to them from within the business versus the enterprise level software solutions which can be accessed through outsourcing.
Rather than investing huge sums to develop in house systems which may become obsolete on the next round of legislative changes and fosters a dependence on key in-house personnel, adoption of outsourced integrated software allows businesses to access ‘smart’ solutions at a fraction of the cost.
Looking ahead the need for businesses to maximize the return on invested resources is prompting the need for providers, be they in-house or outsourced, to become more and more efficient. By and large, the price-tag associated with developing cutting-edge technology poses an insurmountable monetary barrier, especially for smaller and medium-sized enterprises.
Through outsourcing non-strategic business processes, SME’s especially can bridge the gulf between in-house capability and the robust, enterprise level, solutions on offer without incurring substantial development costs.
Increasingly Agile Business Models Require the Liberation of In-house Resources to Focus on Strategic Objectives
As UK businesses continue to adopt agile models, the need to be able to respond rapidly to market conditions continues to drive the necessity to liberate in-house resources in order to focus on strategic projects and outcomes as opposed to necessary – but not objective-aligned – processes such as payroll.
An IRIS client survey indicates that in-house processing of bi-weekly payroll accounts for an annualised average of 240 hours of work. That’s approximately 6 full time weeks in-house personnel aren’t focused on delivering core objectives.
In increasingly competitive markets the benefits from such a decision could be decisive in maintaining a competitive edge, enabling the organization to rapidly adapt to environmental and market changes by dedicating resources to core strategic projects.
Inability of In House Operations to Adequately Fulfill Business Processes
Self-reported figures indicate 41% of currently active payroll professionals report a lack of knowledge with regards to payroll legislation and requirements. Taken in the context of a small but growing business this can be particularly evident where initial payroll requirements for very few personnel snowballs as new staff are employed.
Without adopting correct practices or undergoing intensive process-specific training, in-house operations can be woefully inefficient and unable to adapt to changing internal demand, leaving a business vulnerable to errors. Payroll management is a specialised niche in itself which requires dedicated resources and time.
Such challenges can easily lead to payroll errors. With payroll being the mechanism which forms the key bond between a business and its employees, i.e. accurate and timely payment of salaries, a lack of in-house technical expertise and adequate systems can lead to a diminishing of employee satisfaction. By outsourcing processes such as payroll, businesses can reduce the potential for errors, thus creating an impression of reliability and fostering an environment conducive to achieving business goals.
Outsourcing of non-strategic processes can also mitigate vulnerabilities arising through staffing issues, especially for SMEs. A small business, for example, may task one employee with undertaking payroll management and the associated responsibilities. In the event that the employee takes ill or leaves, the requirement to complete payroll processes remains but the ability to meet requirements does not.
How IRIS Can Help You Achieve Your Strategic Goals
Here at IRIS we have over 40 years of UK-focused industry expertise alongside cutting-edge technology and a vision which puts your business needs at the forefront. Our managed payroll service enables you to focus resources on maximising strategic outcomes and objectives while safe in the knowledge your payroll and HR needs are in good hands.