How to outsource payroll: a step-by-step guide

Around three in five UK businesses now hand payroll to a specialist. Here is how to do it well: the service models, the handover, the questions that separate good providers from cheap ones.

Step 1: choose your service model

• Fully managed payroll – the provider does everything: calculations, payslips, RTI filings, pension assessments, starters and leavers, year-end. You just send the changes each period. Right for businesses with no payroll expertise in-house.
• Part-managed / bureau service – the provider runs the processing engine while you keep tasks like approving data, distributing payslips or making payments. Cheaper, but you retain more responsibility for errors.
• Accountant add-on – many firms bolt payroll onto an existing accountancy relationship. Convenient for micro-employers; specialist bureaux usually handle complexity (tronc, CIS, multiple pay frequencies) better.

Cost is the next question – the payroll outsourcing costs guide breaks down typical fees, and the cost calculator compares outsourcing against running software yourself.

Step 2: shortlist and interrogate providers

Beyond price, the questions that matter:

• Accreditation – look for CIPP Payroll Assurance Scheme membership, BACS-approved bureau status and ISO 27001 for data security.
• What is genuinely included – many quotes exclude auto-enrolment administration (typically £1.50 – £2.50 per employee per month), P11Ds, starters/leavers beyond a set number, and re-runs. Get the full tariff in writing.
• Contract terms – 12-month minimums are common; some providers (PayEscape, for example) offer 30-day rolling contracts.
• Sector experience – CIS, tronc and sleep-in shifts are specialisms, not defaults. Browse our industry guides.
• Service levels – a named contact, error-correction guarantees and cut-off times that fit your pay cycle.

Step 3: the handover

Switching takes a few weeks. The new provider needs your PAYE and Accounts Office references, year-to-date figures for every employee, pension scheme details and payroll history. The cleanest switch is at the start of the tax year on 6 April, when there are no in-year balances to migrate – but a mid-year move is routine for any competent bureau. Run the first one or two periods in parallel with your old process and reconcile to the penny before letting go.

Step 4: what you still own

Outsourcing transfers the work, not the legal duty. You remain the employer responsible to HMRC for accurate, on-time PAYE, to The Pensions Regulator for auto-enrolment, and to staff for minimum wage compliance. A good provider keeps you compliant; the buck never moves. Keep sight of the monthly reports and query anything you do not understand.