Umbrella companies vs. in-house payroll

When an entrepreneur runs a small business that employs just a few staff, payroll functions are mostly handled in-house. Handling the payroll function in that way, however, can create a number of problems that usually arise through lack of in-depth knowledge.
Expertise
In the first place the company has to employ full-time staff that are aware of all the legal requirements regarding how the payroll should be administered; how payslips should be completed and issued, what records should be kept and for how long, as well as which reports must be submitted to the authorities at what stage in the process. Taxation legislation changes extremely regularly, so it is essential that the accountancy staff members are kept fully up to date with the latest legal niceties.
Time
Even if the business is quite small, paid bookkeeping staff members have to spend their time completing all the essential tasks. Those staff members could otherwise be utilised in alternative positions, focussing on the firm’s core activities and generating profits.
Cost implications
Handling the payroll function in-house has considerable cost implications.  Experienced payroll staff members do not come cheap; they also have to be paid whether they are fully utilised or not. Apart from those staff members the firm will also probably need expensive software to run the payroll system. Many of these programs come with an upfront cost as well as a monthly fee, often based on the number of staff the firm employs.
Reliability and flexibility
One very important factor is that at the end of every week or each month, the staff members expect to be paid on time. They won’t accept the excuse that the paymaster is on leave in Spain or is in bed with the flu – so backup staff often have to be trained to cover such eventualities. When tax legislation changes, the system might have to be updated at very short notice. This can be difficult for an in-house payroll department that is already under some pressure.
The available alternative
The alternative is to outsource part or all of the payroll function to an umbrella company. The latter will then take over the agreed part of the payroll function for a fixed monthly fee. There are many benefits to this approach.
Contract cost
The contract will clearly set out which services will be performed at what cost. This makes it easy to budget for the cost of the payroll service well in advance, without any nasty surprises arising. There will be no need to invest in expensive payroll software systems and to pay for regular updates. Spending on hardware, such as computers and printers, as well as stationery will be drastically reduced.
Confidentiality
The firm can be assured that all information will be treated as confidential. While a disgruntled employee might easily leave and divulge sensitive business information to a competitor, it is much less likely to happen if the payroll function is outsourced.
Professional
An outsourced payroll will very often be run much more professionally than the in-house alternative. The latest legislation will be taken into account immediately and payroll functions will be performed on time, every time.