Offshore versus onshore Offshore versus onshore

Offshore versus onshore
31 May 2015

Outsourcing payroll has become best practice for the majority of organisations in recent years, as companies take advantage of the cost and flexibility of payroll services providers in what is an increasingly complex payroll environment.

But with reliable global communications and a highly educated workforce available in countries around the world, does it really matter where the outsource provider is located? Offshoring appears to offer a top line cost advantage but can companies actually get better value from the skills, expertise, understanding and familiarity with UK requirements offered by an onshore provider?

Considering change

For the past few years, most organisations have been far too busy with significant changes to the payroll process - including Real Time Information and autoenrolment - to even consider changing the payroll service, unless there has been a fundamental problem with the incumbent provider.

However, as these new requirements bed in, many organisations are beginning to look again at the cost, quality and value of payroll services. For some, the idea of changing providers will be driven by the pain endured during a bad auto-enrolment experience, for others a more strategic business change, such as merger and acquisition.

Given the upheaval associated with any change in provider to such a critical business process, this is never a decision to be taken lightly. And if organisations opt to look again at the current provider, it is also essential to get that decision right. Employees and shareholders will hardly endure the upheaval and potential cost associated with another change of payroll provider. 

Onshore or offshore?

A fundamental aspect of the decision making process is whether the business go offshore or stay onshore. With a plethora of providers offering payroll services offshore there is a wide choice. But just what do these services offer and does the top line lower cost per payslip actually result in an overall lower cost to the business? It is also worth considering what the service is offering to employees and when they need to raise a query with the overseas payroll team. And just how much management time is going to be required to manage this provider to gain access to the services required?

Understanding costs

The most compelling aspect of the offshore payroll services model is, without doubt, cost. Taking a direct per payslip comparison, onshore services cannot compete directly without extremely tight margins, which will lead to issues later on down the line.

But what is actually included in that service? There may be constraints on employees contacting the payroll provider directly to resolve queries or getting through to people to build up relationships. These individuals should be able to answer queries that are outside the standard and able to explain how much of the payment is due to government working tax credits, for example.

The problem for offshore payroll staff is that they are limited in what they can offer employees. While the essential payroll processing is carried out efficiently, staff often can only work from a basic checklist of responses to employee questions. Because they are based remotely, they may lack the intuitive insight into the day-to-day experience of a UK employee.

In contrast a payroll services provider’s staff in the UK understand the system from the perspective of both service deliverer and employee being paid under this system. As a result, for an onshore provider the service is not simply about processing payroll figures but being able to validate the information with a fundamental understanding of the intricacies of the UK payroll model.

Reliance on the less familiar offshore payroll service can result in significant hidden costs associated with managing employee problems. Find out how much time is required by inhouse payroll liaison personnel to deal with these issues and just how much value is lost to the business in terms of employee productivity and morale when payroll problems occur.

Supporting employees

In an era of employee wellbeing policies and a growing recognition that individuals prize work/life balance over higher pay, it is clearly essential that payroll works well. This requires more than ensuring the individual is paid accurately every week or month. There are a number of other aspects of the payroll process that can improve the employee experience, from self-service access to payslip information to payslips that provide full and clear detail about the amount, including overtime or bonus payments.

Individuals also often need to speak directly to someone in the payroll team to discuss changing circumstances, such as application for family tax credits or shared parental leave. While there is no doubt that offshore payroll staff can answer the basic questions, you should ask if they have access to the required data to respond to more complex queries.

Given the geographic location, there may be issues with time differences. For example, being there to answer questions from concerned employees when critical salary issues have not been resolved.

Managing the provider

Organisations also need to understand where this critical payroll data is held and what security protocols are in place to safeguard that data. In any shared service environment it is essential to be 100 per cent confident that each organisation’s data is ring-fenced. In an offshore model, organisations also need to verify what country specific laws apply to the storage and security of that data.

Understanding who will have access to that data and who is working on the payroll is also clearly essential. This is not just about the level of qualifications of payroll services staff but also their practical experience. 

There need to be plans if first line staff cannot deal with an issue, escalation levels and to senior personnel to deal with critical issues, for example, expat National Insurance contributions.

These are not only important but also evolving issues. Throughout the lifetime of a payroll services contract an organisation may feel the quality of staff allocated to the account is varying. Another key concern, therefore, is whether the organisation has the skills and expertise to manage the provider relationship. For larger organisations with teams dedicated to getting the most from every outsource contract, the answer is probably ‘yes’. But for the rest this can be a thorny issue: who is responsible for managing the relationship? The associated cost in resources and time to get the quality of payroll service both paid for and promised is critical.

Conclusion

In the end, the decision to offshore versus onshore for payroll services comes down to a perception of value. Without doubt top line costs are cheaper offshore, as providers exploit lower labour and infrastructure costs. However, before making the decision it is essential that organisations understand the full implications - from total life costs to employee experience and wellbeing.

For some organisations, especially larger ones with the capacity and capability to manage an offshore provider and gain maximum benefit, offshore may just be the best option. But for many, the ability to build a strong relationship with a local payroll provider that understands the UK employment landscape and does more than just crunching payslips, onshore may be the better option.

Neil Lagden, head of Bond Payroll Services, outlines the key questions to ask when making the onshore versus offshore payroll provider decision 

Outsourcing payroll has become best practice for the majority of organisations in recent years, as companies take advantage of the cost and flexibility of payroll services providers in what is an increasingly complex payroll environment.

But with reliable global communications and a highly educated workforce available in countries around the world, does it really matter where the outsource provider is located? Offshoring appears to offer a top line cost advantage but can companies actually get better value from the skills, expertise, understanding and familiarity with UK requirements offered by an onshore provider?

Considering change

For the past few years, most organisations have been far too busy with significant changes to the payroll process - including Real Time Information and autoenrolment - to even consider changing the payroll service, unless there has been a fundamental problem with the incumbent provider.

However, as these new requirements bed in, many organisations are beginning to look again at the cost, quality and value of payroll services. For some, the idea of changing providers will be driven by the pain endured during a bad auto-enrolment experience, for others a more strategic business change, such as merger and acquisition.

Given the upheaval associated with any change in provider to such a critical business process, this is never a decision to be taken lightly. And if organisations opt to look again at the current provider, it is also essential to get that decision right. Employees and shareholders will hardly endure the upheaval and potential cost associated with another change of payroll provider. 

Onshore or offshore?

A fundamental aspect of the decision making process is whether the business go offshore or stay onshore. With a plethora of providers offering payroll services offshore there is a wide choice. But just what do these services offer and does the top line lower cost per payslip actually result in an overall lower cost to the business? It is also worth considering what the service is offering to employees and when they need to raise a query with the overseas payroll team. And just how much management time is going to be required to manage this provider to gain access to the services required?

Understanding costs

The most compelling aspect of the offshore payroll services model is, without doubt, cost. Taking a direct per payslip comparison, onshore services cannot compete directly without extremely tight margins, which will lead to issues later on down the line.

But what is actually included in that service? There may be constraints on employees contacting the payroll provider directly to resolve queries or getting through to people to build up relationships. These individuals should be able to answer queries that are outside the standard and able to explain how much of the payment is due to government working tax credits, for example.

The problem for offshore payroll staff is that they are limited in what they can offer employees. While the essential payroll processing is carried out efficiently, staff often can only work from a basic checklist of responses to employee questions. Because they are based remotely, they may lack the intuitive insight into the day-to-day experience of a UK employee.

In contrast a payroll services provider’s staff in the UK understand the system from the perspective of both service deliverer and employee being paid under this system. As a result, for an onshore provider the service is not simply about processing payroll figures but being able to validate the information with a fundamental understanding of the intricacies of the UK payroll model.

Reliance on the less familiar offshore payroll service can result in significant hidden costs associated with managing employee problems. Find out how much time is required by inhouse payroll liaison personnel to deal with these issues and just how much value is lost to the business in terms of employee productivity and morale when payroll problems occur.

Supporting employees

In an era of employee wellbeing policies and a growing recognition that individuals prize work/life balance over higher pay, it is clearly essential that payroll works well. This requires more than ensuring the individual is paid accurately every week or month. There are a number of other aspects of the payroll process that can improve the employee experience, from self-service access to payslip information to payslips that provide full and clear detail about the amount, including overtime or bonus payments.

Individuals also often need to speak directly to someone in the payroll team to discuss changing circumstances, such as application for family tax credits or shared parental leave. While there is no doubt that offshore payroll staff can answer the basic questions, you should ask if they have access to the required data to respond to more complex queries.

Given the geographic location, there may be issues with time differences. For example, being there to answer questions from concerned employees when critical salary issues have not been resolved.

Managing the provider

Organisations also need to understand where this critical payroll data is held and what security protocols are in place to safeguard that data. In any shared service environment it is essential to be 100 per cent confident that each organisation’s data is ring-fenced. In an offshore model, organisations also need to verify what country specific laws apply to the storage and security of that data.

Understanding who will have access to that data and who is working on the payroll is also clearly essential. This is not just about the level of qualifications of payroll services staff but also their practical experience. 

There need to be plans if first line staff cannot deal with an issue, escalation levels and to senior personnel to deal with critical issues, for example, expat National Insurance contributions.

These are not only important but also evolving issues. Throughout the lifetime of a payroll services contract an organisation may feel the quality of staff allocated to the account is varying. Another key concern, therefore, is whether the organisation has the skills and expertise to manage the provider relationship. For larger organisations with teams dedicated to getting the most from every outsource contract, the answer is probably ‘yes’. But for the rest this can be a thorny issue: who is responsible for managing the relationship? The associated cost in resources and time to get the quality of payroll service both paid for and promised is critical.

Conclusion

In the end, the decision to offshore versus onshore for payroll services comes down to a perception of value. Without doubt top line costs are cheaper offshore, as providers exploit lower labour and infrastructure costs. However, before making the decision it is essential that organisations understand the full implications - from total life costs to employee experience and wellbeing.

For some organisations, especially larger ones with the capacity and capability to manage an offshore provider and gain maximum benefit, offshore may just be the best option. But for many, the ability to build a strong relationship with a local payroll provider that understands the UK employment landscape and does more than just crunching payslips, onshore may be the better option.

Neil Lagden, head of Bond Payroll Services, outlines the key questions to ask when making the onshore versus offshore payroll provider decision