Should you outsource your payroll services? The pros and cons of in-house vs outsourced payroll 

In-house payroll refers to the management of payroll processes by employees within the organisation. In large businesses, this usually involves a dedicated payroll team that often sits within HR or finance. These teams are responsible for maintaining compliance across multiple locations, managing high data volumes and supporting complex workforce structures. 

Smaller organisations may rely on one payroll specialist or a generalist who manages payroll alongside other responsibilities. Larger enterprises typically require a more robust setup with skilled payroll professionals, clear process ownership and defined roles to handle the scale and regulatory demands of the operation. 

Running payroll in-house also requires reliable software infrastructure.

Enterprise payroll teams use specialist systems to automate calculations, store data securely and manage key processes such as: 

• Bank account administration
• Payroll scheduling
• Recordkeeping and data management
• Time tracking and consolidation of hours worked
• Calculating statutory and voluntary deductions, including tax, pensions, student loans, benefits and healthcare contributions
• Initiating employee payments

This combination of people, process and technology forms the core of in-house payroll for large organisations. 

Many large organisations choose to keep payroll in house because it gives them direct control over sensitive employee data and keeps payroll closely connected to wider HR and finance operations. This is particularly valuable when working with complex HR ecosystems that link payroll to time, attendance, leave, compensation and accounting. 

Integrated data

When payroll is managed internally, information from across the employee lifecycle can be connected through the organisation’s own systems. This provides: 

• Visibility across HR and finance, with all data accessible in one place 
• Improved analytics because information is consistent and easy to combine 
• Better decision making supported by complete datasets 
• Time savings created by shared information across functions 
• A lower risk of compliance issues due to aligned and accurate records 
• A single source of truth that teams across the organisation can use 
• Consistency in how data is processed and maintained 

Integrated HR and payroll systems can have wide ranging benefits, with data flowing seamlessly; discover more about these benefits in our blog on integrated vs stand alone HR and payroll systems. 

Control

Internal teams can work to their own timelines, make last minute updates when required and tailor processes to the structure of the business. This level of oversight helps maintain accuracy in high-volume and multi-jurisdiction payroll environments. Sarah Hinsley from CleanEvent Services implemented an integrated HR and payroll system: 

“That’s what I like about Access; you can provide all of that in one place, rather than using different providers for different HR processes. And you’re reducing the amount of processes we do manually, and so you’re reducing the risk of error.” 

Automation use

Many HR platforms can automate tasks such as deductions, calculations and statutory filing. This supports efficiency while allowing payroll leaders to design workflows that suit their specific operating model. 

Simple self-service features 

Internal systems can issue digital payslips and store payroll documents in one place. Gartner reports that 47% of HR leaders plan to prioritise HR technology, which highlights the growing need for systems that reduce administrative requests and give employees straightforward access to their information. 

Use payroll data for forecasting 

When organisations keep payroll data in house, they can analyse trends in compensation, workforce growth, benefits spending and labour costs. This helps with planning and supports wider HR priorities. Gartner’s research shows that 60% of HR leaders are focusing on leader and manager development, 53% are concentrating on organisational culture, 46% are prioritising change management, and 42% are working on future of work strategies. Reliable payroll data contributes to each of these areas because it provides insight into workforce patterns, costs and organisational structure. 

Room for error

UK businesses could be losing as much as £150,000 a year through payroll errors. However, much of the risk could be mitigated by using HR software that allows for automation – 72% of companies are still estimated to be using manual processes.

Compliance management

When you manage payroll in house, compliance around holiday pay, national minimum wage, taxation and much more becomes your responsibility. Compliance is becoming ever-more complicated and major organisations like KPMG do not expect this to let up, anticipating the trend of increasingly complex workforce compliance to continue. 

Time-consuming processes

Payroll is complex and the processes involved take time – even with effective automation, systems and processes still need to be properly managed. This can significantly impact the ways that teams spend their time, reducing their ability to take on other important tasks. Time is precious across functions, but particularly important for HR and payroll teams; an AI-enabled HR and payroll system like PeopleXD Evo can give time back to your teams. 

“I’m spending too much time on the tech, not enough time with my people. Frankenstack was a great intention—it was the right thing to do to get the depth—but you’re not leveraging that depth if you’re spending all your time servicing the integration between those two points. The promise didn’t quite live up. You think, ‘I’ll take product A and product B and integrate them and of course this will flow from here to here.’ But what’s happening now is customers are saying, ‘I’m spending too much time on the tech, not enough time with my people.’” 

Oli Quayle, AI Evangelist at The Access Group, Mastering the Employee Lifecycle, part of our Do the Best Work of Your Life series. 

Cost

Time is money, particularly in cost centres such as HR and finance departments. Could your team be spending their time on valuable endeavours if you were to outsource payroll instead? If you need to hire new team members to take on payroll, there are also recruitment, onboarding and time to productivity costs to factor in. 

Resourcing

Payroll is a specialised function that needs to be managed by trained, skilled employees. Having the necessary resources in house can be expensive and gaps can be left when people leave the team, take annual leave or are off sick. 

For large organisations, outsourced payroll refers to the practice of transferring some or all payroll responsibilities to an external specialist provider. This can range from outsourcing individual administrative tasks to fully managed services where the provider takes complete ownership of payroll operations. Outsourced payroll is often used by complex organisations to improve efficiency, reduce internal workload, strengthen compliance and reduce operational risk. 

Outsourced payroll models typically fall into two categories that large businesses should assess carefully: 

Partially outsourced payroll 

In this model, organisations keep certain responsibilities in‑house, such as data entry, approval processes or managing exceptions, while outsourcing labour‑intensive or high‑risk tasks. These may include: 

• payroll calculations
• statutory deductions
• tax and reporting submissions to HMRC
• pension processing
• producing and distributing payslips 

This option is often chosen by large businesses wanting to retain some operational control while reducing internal administrative burden. 

Fully managed payroll 

Fully managed payroll involves transferring end‑to‑end responsibility to a specialist payroll provider. This can include: 

• all calculations and validations 
• processing payments to employees and HMRC 
• reporting and compliance management 
• producing annual documents such as P60s and P11Ds 
• employee support for payroll queries 

Large organisations tend to adopt this approach when internal payroll teams face capacity constraints, when specialist skills are difficult to recruit or retain, or when a single, consistent process is required across multiple sites or locations. 

There are several benefits of using a payroll service, particularly for large organisations that manage high volumes of data and need predictable, reliable processes. Outsourcing can ease the pressure on internal teams, strengthen compliance and offer resilience during busy periods or organisational change. Wilmington plc implemented Access PeopleXD Evo and Esther details exactly why the system has become so important for reliability: 

“The accuracy is a world away from where we were with our previous supplier. It’s a much slicker process, both for the people who do the work and for our employees who don’t have to experience all the pitfalls of when things go wrong.” 

Time saved 

Recruitment, training, performance management and holiday cover all require ongoing effort when payroll is managed internally. By working with an external provider, organisations can remove much of this workload and free up time for HR and finance teams to focus on other priorities. 

Quicker set up 

Selecting and setting up a payroll provider is also typically quicker than hiring or upskilling in‑house specialists. Once a provider is in place, switching to another service is usually straightforward if the organisation later requires a different level of support. 

Operational reliability 

Payroll will continue regardless of internal staff absences, vacancies or peak workload periods. The provider is contracted to deliver accurate and timely payroll, which helps reduce pressure during month-end cycles or seasonal peaks. 

Compliance management 

External payroll teams stay up to date with legislative changes and build these requirements into their services. This can reduce risk for organisations that may struggle to track complex or frequently changing employment regulations. 

Flexibility 

Organisations can choose a fully managed payroll service or select only the tasks they want external support with. Experienced providers can tailor their approach based on the business structure, workforce profile and internal capabilities. 

Cost predictability 

While outsourced payroll involves a contract fee, it can be more flexible than the fixed overheads associated with maintaining an in-house team. Industry experts highlight this value. As Jackline Ogara MCIPPdip, payroll manager at River Island, notes: 

“Outsourcing can give you access to capabilities and facilities otherwise not accessible or affordable to the company. What’s more, it can bring in fresh perspectives as new people bring new ideas on how to do certain things.” 

For large organisations, these combined benefits can create a more resilient, consistent and cost-effective payroll operation, especially where internal capacity is limited. 

Costs 

Over time, the ongoing costs of outsourcing payroll can mount and it can become a significant business expenditure. However, mistakes cost more – even employee morale. It’s been shown that late or incorrect payments can cause employees to become actively disengaged, so investing in a reliable payroll service is crucial.   

A lack of visibility 

Outsourcing payroll can lead to a lack of oversight in key business areas due to decentralised data. Considering leader and manager effectiveness is the top priority for HR leaders, quality, well-rounded data is needed. Without it, managers and leaders can’t make effective decisions; they need to see the bigger picture and have organisational oversight. If you decide to outsource payroll, ensure you will still have access to the necessary data. Cineworld implemented an in-house integrated HR and payroll system (Access PeopleXD Evo) and had this to say: 

“We had no audit trails, no single source of the truth and no robust security… Access People was the only provider that could give us an end‑to‑end, secure, cloud‑based HR and Payroll solution.” 

Less oversight of vital processes 

When you outsource payroll, you put the trust in your provider to manage it correctly. 

"You cannot check in when you want to or add anything that is missing. Also, the contract might be too rigid to accommodate change.” - Jackline Ogara 

Outsourcing large amounts of data 

Payroll data is some of the most sensitive information your business will hold. Vet your provider thoroughly and ensure that data sharing processes are secure and well thought out, reducing the risk of sensitive data being put at risk. 

Large organisations typically follow a structured process when moving to an outsourced payroll service. The transition involves several stages that help protect data, maintain compliance and ensure that payroll continues to run without interruption. 

1. Define the scope and requirements 

Start by identifying which payroll activities you want to outsource. Some organisations hand over the full service. Others keep elements such as reporting or time capture in house. Setting clear requirements helps providers understand what level of support you need and how your existing HR and finance systems operate. 

2. Carry out due diligence 

Research potential providers and assess their experience, capacity and track record. Large organisations often review security standards, financial stability, technology capabilities and sector expertise. It is common to speak with reference clients and request evidence of service performance. A structured due diligence process helps reduce risk before contracts are agreed. 

3. Build a realistic budget 

Costs vary depending on workforce size, pay cycles and the level of service required. Budget planning usually includes transition activity and any additional system configuration. Creating a clear financial model early in the process helps organisations compare providers and understand which services offer the best long-term value. 

4. Map existing processes 

Document your current payroll workflow, including inputs, approval points, deadlines, interfaces and reporting needs. This step helps both parties understand how payroll operates today and what needs to change when responsibilities move to the provider. Process mapping also highlights risks that must be addressed before go-live. 

5. Prepare for data migration 

Organisations need to transfer accurate payroll data to the provider. This includes pay histories, tax information, benefits, leave balances and organisational structure. Data cleansing is important because errors at this stage can disrupt the first live cycle. Secure transfer methods and clear data ownership rules form an essential part of this step. 

6. Establish governance and controls 

A governance framework helps maintain accuracy and accountability once the service is live. This normally includes escalation routes, approval processes, audit trails and service reviews. Large organisations often create joint working groups to oversee performance and compliance. 

7. Test the service before going live 

Testing helps ensure that calculations, integrations and payment files work correctly. Parallel runs are common, with the outsourced provider processing payroll while the internal team continues to run their usual cycle. Comparing results helps identify errors early and gives confidence that the service will operate reliably. 

8. Go live and monitor performance 

After testing, the new service can go live. Regular performance reviews help ensure accuracy and prompt resolution of any issues. Many organisations complete a formal audit after the first few pay periods to confirm compliance and data integrity. 

For organisations with more than 500 employees, the choice between in-house and outsourced payroll depends on how well current processes cope with scale, complexity and compliance. There is no single answer. The decision comes down to capacity, technology and the level of control the business wants to keep. 

Start by reviewing your existing setup. Look at your processes, systems and the workload placed on HR and finance teams. This helps identify where gaps exist and whether only specific tasks need external support. 

Next, explore potential providers. Compare their service models, onboarding process and compliance capabilities. At the same time, check whether upgrading your payroll or HR software could resolve issues without moving to a fully outsourced model. 

Budget also plays a role. Compare the cost of external services with the internal resources required to run payroll at scale. 

Scenario planning can help finalise the decision. High growth organisations may need extra capacity. Multi-site employers may want consistency across locations. Sectors with heavy regulation may require specialist compliance support. 

Both models can work for large organisations. The right choice is the one that fits your operational pressures and future plans. 

Large organisations can answer the question “should I outsource payroll?” by reviewing how well their current processes cope with scale, complexity and compliance demands. The right choice is the one that keeps payroll accurate, reduces risk and allows teams to work efficiently. 

A practical way to reach a decision is to review how payroll is managed today. Look at your processes, software, time commitments and the level of manual work still required. This helps you assess whether in-house management is sustainable or whether external support would relieve pressure on your teams. 

Next, explore what providers can offer. Compare their service models, onboarding processes and pricing. Alongside this, review whether improvements to your HR or payroll software could solve issues without needing a complete move to outsourcing. 

Once you have this information, compare it with your future plans. High growth, multi-site structures or compliance-heavy environments may benefit from external support. Other organisations may choose to retain payroll internally because it aligns better with their systems and data strategy.