Payroll for education: the ultimate guide for schools

Outsourced payroll for the education sector

An outsourced payroll service, otherwise known as a managed payroll service, is when a school or Multi-Academy Trust delegates the responsibility of payroll management to an accredited third-party provider. 

Typically, this is the preferred option for schools who do not have the resource or capacity to run payroll in-house and choose to focus the resource they do have on more strategic projects. This is not always the case however, with some schools or Multi-Academy Trusts simply choosing to alleviate the burden that payroll and pensions can bring, saving their team valuable time.  

Advantages of outsourcing your school’s payroll: 

No need for in-house payroll expertise: For schools or Multi-Academy Trusts that do not have a dedicated payroll team in place, and do not plan to bring expertise in-house, outsourcing payroll and pensions is typically the best option. By outsourcing payroll management to a trained and qualified third-party provider, you eradicate the need to hire a team of certified payroll professionals. Although managed payroll can therefore seem more expensive, you will need to compare the budget of hiring additional staff members to the cost of outsourcing payroll to form a cost benefit analysis.

No payroll processing burden: Outsourcing your payroll to a third-party provider removes the need to train your staff on a new system and takes away the burden and pressure of managing the school’s payroll. Relieving this pressure from employees can often foster a less stressful work environment and can lead to happier staff. Supporting this notion is a study that found happier staff were 12% more productive, while unhappy workers were 10% less productive. So, not only could your school save time and money by not having to train current and new employees on an in-house system, but they will also have more time to focus on other projects.

Saves time: Outsourcing your payroll gives your team one less thing to focus on, giving them time back to work on more strategic projects. This is becoming an increasingly important subject in schools as a survey found that 44% of teachers in England who took part plan to quit within the next five years, with 55% of them citing an ‘unmanageable’ workload.

By outsourcing this responsibility, the only tasks your team need to perform are checking and signing off on the payroll on the agreed upon date. Although your team may need to prepare and extract the payroll data from your HR system and provide it to your third-party payroll provider, this can be avoided by looking at providers who have both an outsourced payroll service and a HR system, allowing the payroll team to extract the data themselves.

Fewer mistakes: Choosing a qualified, reliable, and accredited payroll provider who knows the ins and outs of your sector will almost guarantee that fewer mistakes are made during the payroll process. Where an in-house team may have additional responsibilities on top of payroll management, a third-party team will be dedicated to payroll, and as they perform the task day in and day out, they will know the challenges that payroll can bring.

In order to reduce the likelihood of mistakes, look for providers who solely work in the education sector, giving you the re-assurance that the provider is acutely accustomed to the specific needs and requirements of school payroll management. You should also look for statistics on accuracy rating, how many parallel runs are performed before the payroll hand over date, as well as any commendations and payroll certifications.

Up to date compliance: Legislation is constantly developing and can be difficult to keep track of if payroll management is not your sole duty. Third-party providers are constantly updated on new labour codes and legislations that come into effect and will automatically update this on your behalf, ensuring your school remains compliant.

Disadvantages of outsourcing your school’s payroll:

Ongoing subscription costs: As you are outsourcing the responsibility of payroll to a dedicated third-party provider, it will inevitably come at a cost. Depending on whether you outsource both your payroll and your pensions or only your payroll will also factor into the pricing. Keep in mind, you are getting a service from an accredited, reliable third-party provider that have experience processing payroll and will work alongside your company to ensure your payroll is accurate and that your school remains compliant.

Using budget planning solutions, we advise you create a scenario in which you hired an expert payroll team and trained them on an in-house system. This will allow you to compare the cost to quotes from third-party companies to see which would provide the most cost beneficial solution for your school.

Less flexibility: Third-party payroll providers will often have strict cut-off dates for payroll, and although this date is agreed between the school and the provider, it can at times seem inflexible.

When outsourcing, if there is a last-minute change that needs to be made to payroll, you will typically need to telephone or email your third-party provider and then await their response. With an in-house payroll team however, you could in theory just walk up to your employees’ desk and let them know about the change, making communication much faster. So, when looking into a managed payroll service, you should consider how many last-minute urgent changes have been noted and if the lack of flexibility or time taken for a response is going to be an issue.

Less oversight during payroll processing: Outsourcing your payroll means you no longer have the responsibility of managing your payroll processing as this will be delegated to a third-party supplier. Due to this, you will not typically see your payroll data until it is sent to you by your payroll executive for review. This therefore puts a limit on the level of visibility you have over your own school payroll. 

In-house payroll for the education sector

An in-house payroll system allows certified and experienced employees that are employed by the school or Multi-Academy Trust to process payroll and pensions in-house. This option is typically selected by schools that have an established existing payroll team and want to increase their control and visibility.

Advantages of in-house payroll for schools:

Lower long-term costs: Although there are factors to consider such as the initial cost to implementing a new system, hiring certified and experienced employees, training, as well as an annual fee for the system, it is often cheaper to bring payroll in house in the long-term than it is to subscribe to a service.

With a managed payroll service, you will often be paying per employee per month when it comes to payroll processing, average price per payslip? In contrast to this, for an in-house payroll system, you will be paying a much lower annual fee as you are only purchasing the system; not the service itself.

Due to this, although hiring a dedicated staff member for payroll will not come cheap, nor will the system itself, you may find it is cheaper in the long-term than outsourcing it and paying a high monthly fee.

Increased oversight during payroll processing: Bringing your payroll management in-house allows you to have more visibility over the entire payroll process end-to end. Where in a managed payroll service you only have access to the data you are given during a specific time frame, with an in-house system, you can easily go in and access the data you require within minutes.

This ease of access allows you to create more detailed and tailored reports, ensuring you always have the information you need to hand.

Though this could raise questions on security and confidentiality, there is no need to worry. If you have different hierarchies within your team that need different levels of visibility or access, you can easily configure this within your in-house system. This visibility hierarchy ensures privacy and confidentiality are maintained, keeping your school compliant.

Deadline flexibility: Having a dedicated in-house payroll team can help you become more flexible when it comes to payroll deadlines due to faster communication and increased adaptability. This can therefore relieve the pressure fixed deadlines can bring to finance and HR teams who are on a time crunch to produce ever-changing data.
If a last-minute change should occur, the finance team could simply send the payroll team a Teams message, email, call or even drop by their desk to let them know about the amendment.

Co-ordination between back-office teams: By bringing all of your processes in-house and managing them at a school or trust level, you are opening the doors for integration and communication between your teams and software. As each process can have an impact on the other, it follows suit that data from one system must be entered into another. Let’s take the school budget software and the school HR system for example, though HR impacts payroll, it also affects the school’s budget. Any starters, leavers or changes made in HR will therefore also have to be inputted into the school’s budget. The payroll itself will also need to be uploaded into the school finance teams software to ensure their information is updated.

A study showed that the leading cause of stress in schools was due to administrative tasks which take away valuable time from more strategic projects. Therefore, with so much data crossover it’s imperative to find systems that integrate with one another to reduce the amount of admin your central teams spend time on.

Greater accuracy due to school knowledge: Although an experienced and certified third-party payroll provider will know payroll like the back of their hand, they’re only as good as the information supplied to them from the HR system. After all, no one knows your school or its employees like you do, and it will be more obvious to you if something has been inputted incorrectly into the HR system or some crucial information has been missed than it will be to a supplier who processes multiple payslips from multiple companies daily.

In addition to this, if any employees have queries regarding their payslip for that month, it will be a much quicker resolution if you have an in-house payroll team to manage it. Employees will feel like they are getting a more personable service and won’t have to wait on a third-party supplier’s response.

Increased sector knowledge: As your payroll executive will be responsible for processing payroll and pensions across the school, they will be familiar with the nuances that come with school payroll. Each sector works differently, and no two schools are alike- a SEN primary school in Woking may have different payroll requirements to a secondary school in Birmingham for example. By solely processing payroll for a school or Multi-Academy Trust, sector specific details such as teachers’ pensions will be second nature.

Disadvantages of in-house payroll for schools

In-house expertise required: Before making the decision to bring your payroll management in-house, you first need to consider whether you have the resources to perform the task successfully and reliably. With an outsourced payroll service, the third-party supplier will often perform two parallel runs alongside your previous provider to ensure payroll payments are accurate and timely, so why should your in-house service be any different?

In order to have a reliable in-house payroll service, you will need a fully operational and experienced payroll team who are certified and qualified to do the job. In theory, hiring one payroll executive to manage your pensions and payroll would be the most beneficial when considering costs, however you also need to future proof and reflect on some ‘what if’ scenarios. What if your payroll executive were to go on maternity or long-term sick leave for example? To avoid this situation, you should hire a dedicated in-house payroll team of at least two people, so that if someone ever did leave for whichever reason, your payroll will not be affected and there will be no significant repercussions. Afterall, paid employees are engaged employees.

Training requirements: When implementing a new system, it follows that employees will need to be trained on how to effectively use the software, whether that’s your HR portal or your payroll platform. They may be certified in payroll management, but all systems differ one way or another so they may be unfamiliar with the payroll system unless they have previously used it in a separate role.

Training can become costly, so ensure that once the training during the implementation period has been completed, that at least one member of your payroll team becomes a certified expert and is able to train new employees as your team expands. If your team are not able to train new starters during their onboarding process, you may have to go back to the software supplier and request further training which can often be costly.

Legislation development: Legislation is constantly developing and can often be difficult to keep track of, even if payroll management is your sole responsibility. If you have an in-house payroll team, you will need to ensure they remain up to date on all codes and legislation as, if they don’t, the issue of compliance will fall on your school and could have serious consequences. If you are looking at brining payroll management in-house, in addition to the benefits listed above, ensure you are also prepared to shoulder the responsibility and possible consequences of the process.

Maintenance costs: When looking for an in-house payroll system, you will be presented with two options: a cloud-based system, or a server. If you choose to go down the server route, note that this may require regular maintenance which will add to your costs. The supplier may also charge you to upgrade onto their latest version of the system if the solution develops in the future. So, although an in-house payroll system can be cheaper in the long run, note that there may be additional costs to consider should you implement a server.