Outsourcing your payroll department

01 February 2019

This article was featured in the February 2019 issue of the magazine.

Jason Davenport MCIPP MIoD, founder of Calendar Consulting Ltd, discusses the issues to consider based on his experience

Many articles have been written on the subject of outsourcing but unfortunately still today we hear of examples of contracts that get into trouble. 

During the past thirty years I have been responsible for internal payroll and pension teams and delivered services with outsourced teams alike. 

I hope the notes below may help those considering outsourcing their payroll, human resources admin, pensions and associated reward services to a third party. 

I would like you to consider the following to help determine if it is the right step for you.

  • What sort of an organisation are you? Do you recognise that you already outsource many services? Office cleaning, security, telephony, facilities management, may already be handled by a third party. Legal services may also be something you buy in when necessary rather than having a committed team. You may already have a team working to manage those relationships, and ensuring every day that delivery is maintained to a high standard of service. What lessons can be drawn from those who manage these service contracts? I imagine very regular contact, working almost hand-in-glove and being responsible for client-side delivery are very high on the agenda to create success.

  • As a business, what are your values? If you are in the public sector, then the citizen’s agenda and spending tax-payers money wisely is high on your radar. Not-for-profit and charitable status also have a similar driver for prudence; and even privately-owned businesses and public limited companies whilst recognising the language of profit still want value for money from any partnership they are procuring.

So, do the above values resonate with you; and do you already outsource several services to ensure your business runs effectively?

  • Ask yourself what are the drivers for outsourcing this key element of your business? Are you looking for compliance and to reduce risk? Do you prefer this work handled by a fully qualified, trained team? Are you looking to reduce cost within the business model today or indeed create capacity for other work within the teams that are normally responsible for delivery? It may be one or more of the above or a consideration of other factors that are driving a strategic review of how best to serve your business and its employees.


...the right steps to be ‘fit’ for outsourcing... 


  • Who is going to be responsible for the services within your own organisation, and how close to the subject matter in hand are they? Creating an intelligent client (IC) within your own organisation is very important to ensure productive reviews take place regarding service responsibilities. Managing plans for either deployment of legislation or changes within the business that are discussed and agreed by both parties in good time for implementation of the changes. The IC role holder will also play a key part in co-ordinating communications and managing stakeholders within your own organisation, so needs to have a level of seniority to ensure successful day to day management happens. As with life, in business things can happen to de-rail plans and so contingency plans and business continuity arrangements need to be considered so they can be invoked quickly. The IC role holder also needs to be someone who can commit to managing such situations and remain calm in a crisis in order to ensure that should such eventualities occur, then the business will find its way through them and remain on track.

  • How is success measured? Think about what level of starters and leavers you have today in terms of attrition. How many changes are made each month and how quickly do the changes need to be made for the employees, especially if contractual and pay-affecting? A service is to be measured in several tactical ways; volumes of data handled and how timely and accurately they are made create an efficient service. Today’s employee base and managers too may also want choices in how they interact with the service. Not just traditional routes such as face to face, telephone and email; they may also be looking for other options such as chat facilities and instant messaging without the need for voice interaction. The level of customer service and channels available to you then move from efficient to effective in the delivery style. 

A part of measuring success is also about the first four components above and whether culture and values align, which for larger businesses creates more synergy to work in partnership together to the benefit of both parties.

The above considerations are only a start, but it is important to be thinking about them to ensure you are considering the right steps to be ‘fit’ for outsourcing and to make the best of the relationship. It is not about abdication, rather delegation.