Payroll Outsourcing for the Retail Industry
The retail industry is one of the many sectors that can benefit from outsourcing its payroll, finds James Allen.
More than 200 years ago England was described as “a nation of shopkeepers” and while the future of the high street is far from rosy, in many ways, that centuries-old description still holds at least a grain of truth today. According to a recent report by the UK Commission for Employment and Skills the retail sector employs three million people, making it the largest private employer in the UK – accounting for 10% of all jobs.
Given the state of the economy – which may or may not have turned a corner and started to see growth – retailers could do with all the assistance they can find. And while at first glance outsourcing the payroll may not be an obvious move to help the industry perhaps retail, more than most, could really benefit from passing the task of paying staff on to an external provider to perform.
“It is a high volume, high transactional world”, says David Woodward, chief product and innovation officer at Ceridian.
“Even for the smaller retailers, there is a lot of data being gathered – often weekly – with a lot of potential risk for error and therefore the quality of the payroll function and what it is able to deliver can be quite variable.
“Retail is at the more complex end of running a payroll, because of the volatility and volume of data coming through. I’m not saying they all work really badly but the reality is that they vary and often much of the work for individuals is to keep spinning the plates.”
Extending Woodward’s metaphor, there can tend to be a few, very key personnel upon which the companies are dependent on to “spin the plates” of payroll, who, for whatever reason –whether it be illness, retirement, maternity leave – have to stop providing their significant contribution.
“It hits employers and it won’t be an easy process to simply hand the job over to whoever may replace that person, so some businesses realise then that selling goods is their core competence and managing very complex transactional services in the back office isn’t,” he says.
Carsten Staehr, CEO at Cintra believes that there are “lots of reasons” why businesses based in the retail sector are perfectly suited to moving their payroll to an external provider.
“Typically they have a changing workforce with lots of starters and leavers all the time – which is obviously a heavy burden. It is very seasonal, with peaks around Christmas and the summer, for example, making the job for the department tricky. Retail staff also tend to be on variable pay and the admin burden is much heavier for payroll when you have many on variable pay.”
That “burden” Staehr refers to, has got worse recently, according to Woodward: “What has been causing companies to question whether keeping an in-house payroll is the right thing to do is the sheer complexity and volatility that has been around in recent times.
“The combination of Real Time Information (RTI) reporting – a major headache for many businesses – and the complexity of pension reform as well really exposed the fact that some payroll solutions are just not fit for purpose when it comes to meeting those demands,” he says.
Moorepay’s Karen Carway agrees: “With the massive changes in legislation we have seen recently, with RTI and auto-enrolment, the portion of the retail sector that is continuing to do its payroll in-house has found it really difficult to keep up to date and are still not where they need to be – this is particularly true as far as auto-enrolment is concerned.
“Outsourcers can provide and manage that for them which is a huge relief and something that should be given real consideration.”
That last point by Carway cannot be overstated; transferring a task – which is not a primary function of the business – to a company where it is, can enable a business to really focus on what it is best at.
For the retail industry that is invariably selling goods to consumers and the freedom to just concentrate on that will undoubtedly appeal.
And there is one possible advantage of outsourcing that is somewhat unexpected, which has been noticed by Woodward.
“When businesses outsource there is often a period of time where they continue to run on their incumbent solution before switching to the new platform.
“What is intriguing is that while only the responsibility of running the service moves to the provider during this period, the technology is still the old in-house system, but the quality of service actually improves.
“The only conclusion you can draw is that the outsourcer bringing their working practices and management skills that were not their while it was in-house, improves the service – even before the technology changes.”
While the existence of that benefit may be somewhat difficult to quantify, there are many others that are much more obvious.
Savings can be made in off-loading the “heavy admin burden” that is particularly associated with the retail industry, according to Staehr.
“The outsource provider has all those processes streamlined, so can, without any doubt, run it cheaper than they would do it themselves.”
Many see the benefits of outsourcing but are unable to look any further than the upfront costs involved, questioning if they are worth it.
For Woodward though, the answer to that question has been answered. “It is unusual for organisations to outsource and not see a good return on investment,” he says.
“There will be some form of payback, not necessarily in pounds and pence – though that is certainly possible, but the main area of hard savings will be through greater efficiency.
“It will be because of economies of scale and people management efficiencies as they can typically operate the service with fewer people than used internally.
“They can also spread the technology cost because they provide the service to a number of clients and that’s before you factor in more intangible costs associated with compliance and risk.”
It is much harder to work out the cost of non-compliance as, if fined, it could potentially be huge amounts and not having an external company taking responsibility of that can be a risky business.
Ultimately then, as Staer sums up: “Retail has a lot to gain from outsourcing their payroll.”
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