Why payroll can drive profits, not just headaches

Outsourced payroll services are underrated.

Trust me, we asked. Employment Hero recently conducted a survey of 313 accountancy and professional service firms. Perceptions of offering outsourced payroll services were very 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.

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

Now, there are some real challenges to payroll – particularly in the UK. But it can also be exceptionally rewarding and profitable. Our survey results explain why.

Outsourced payroll services are a profit driver

Our research suggests offering outsourced payroll services makes a firm far more profitable.

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 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.

In other words, 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.

Why payroll is a headache

Those profits don’t change the fact that payroll is far too often a headache.

A big part of that is just how long it takes.

Our survey showed the UK’s median pay run took a whole day to complete, compared to an average of two hours or less in Australia and New Zealand. Indeed, 71% of respondents in Australia and New Zealand said a typical pay run took two hours or less, compared to just 8% of those in the UK.

That dramatic difference cannot be blamed on a single factor. But undoubtedly the fact that we have had a whirlwind of new legislation in the past few years has contributed, with some changes barely in place before they are reversed, and the evolving headache of different ‘zones’ where national insurance contributions are handled differently. The approaching changes to laws as a result of our exit from the European Union will just add complexity.

Another part of the problem is the software we use. Newer cloud software can handle these kinds of changes to legislation easily, and speed up a lot of processes with automation – but that only happens if we use them.

Our survey showed many firms were still somewhat wary about cloud applications, however. 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 cited gaps in cloud software were user training (29%) and client training (28%).

How to fix that

As tough as change can be, shifting more of your services to good cloud software like Employment Hero Payroll can help make payroll a lot smoother.

But “the cloud” itself won’t solve everything. The survey showed the average firm used six different cloud applications – a situation that could lead to a lot of data double handling and extensive user training. Sticking to a single suite of software that can integrate payroll with other functions like pensions management and wider HR tools such as Employment Hero can help here.

Luckily, the future is bright for payroll. AI tools are getting better every day at manual and repetitive tasks like pay runs. This doesn’t mean they will be anywhere near “replacing” humans any time soon – something as sensitive as paying people their salaries should always involve a person – but it does mean those humans are going to become a lot more productive. The saved time should free up accounts and payroll teams from boring tasks and allow them to offer clients the strategic advice they are often hired for.

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