Academy payroll: Outsourcing vs in-house software

Accurate payroll management really matters – research from Sage indicates that 51% of UK workers would lose trust in their employer if they were paid incorrectly, and 33% would find another job. In this article, you can explore two popular options: outsourced payroll and in-house payroll software, specifically for Multi-Academy Trusts (MATs). Understanding the differences between both is the first step towards finding the right solution for your academy.  

Meeting academy payroll requirements: What to prioritise

Payroll in the education sector requires some additional considerations compared to the private sector – and even more so for academies. As an academy, it’s advisable to seek a future-fit solution that can grow with your institution. This will also help you meet inevitable education sector developments head on, supporting your institution through change or expansion.

These are some of the key considerations for academy payroll:

• Compliance. In the education sector, payroll regulations are not only strict, but change regularly. Ensure you can keep up with regulations and feel completely comfortable with the payroll solution you choose.
• Ability to handle teacher pensions. These are inherently complicated, with different pension schemes, auto enrolment, supply teacher pensions and more to deal with during every pay cycle.
• Effective use of data. According to the government’s multi-academy trust (MAT) assurance framework, one area where academies can support and drive school improvement is through its use of data. The framework encourages schools to look at smart data systems, data transparency and the aggregation/disaggregation of data to make improvements. This is highly applicable to payroll and the framework can be used to assess capabilities for a MAT payroll solution.
• Provision for staff based across different sites. This should include teaching staff on education pay scales, as well as staff in other functions such as operations and HR.
• Flexibility. Academies may have different pay scales to state schools – and even if this is not the case now, it may change in future. An academy payroll solution should be able to accommodate change.

Outsourcing academy payroll services

An outsourced academy payroll service is where an external provider takes care of payroll processing on behalf of the institution. The provider will generally be an expert in school payroll and can manage everything from HMRC submissions, to holiday pay, to payslip distribution and much more.

These are the benefits of outsourced payroll for academies:

• Reduced administrative workload. A payroll provider can manage the process end-to-end, cutting down the workload for internal employees.
• Assurance of compliance. An external payroll provider will be responsible for meeting compliance requirements. Look for a provider with a thorough understanding of education sector requirements.
• Access to education sector payroll expertise. When you choose a specialist in education payroll, you can lean on them for sector-specific knowledge and they can help your school stay up to date.
• High accuracy. You should be able to expect high standards. Look at a provider’s accuracy rating, and whether they have any accreditations. The Payroll Assurance Scheme is generally regarded to be the gold standard for payroll practices.
• Specialist services for academies. Academy payroll can pose specific challenges. A payroll provider that regularly works with academies and MATs should be well set up and resourced to deal with your requirements.

What could be the possible downsides of a fully outsourced payroll service?

• Ongoing costs. Carefully balance the cost of an outsourced payroll service against internal overheads for permanent staff. Outsourced services can sometimes offer cost savings, but does the contract lock in a fixed price? Could prices rise over time? And will you have to pay extra for certain services? You may also end up paying a premium for the flexibility of outsourced services.
• Your academy will be placing a great deal of trust in the selected providerAll processes must be finely tuned so you feel confident in the delivery of service; handing over this role can be a positive, but only when processes run like clockwork.
• Ongoing payroll administration. Note that your academy should still be prepared to provide all the information needed for someone else to run payroll. Administration and HR support will therefore still be required internally, though to a far lesser degree.
• Reduced flexibility. Schools, and in particular MATs, are busy environments with many priorities to juggle. But when it comes to payroll, you will need to commit to specific deadlines with your external partner so it can run on time.
• Service Options. Thoroughly scope out the services on offer from potential providers to avoid a situation where their offering does not align with your needs. If certain factors are a priority for your academy – maybe you need ePayslips for teachers, or would like the opportunity for a telephone payroll review each month – be clear and upfront about your requirements.

Using in-house academy payroll software

In-house academy payroll software allows schools and academies to manage their own payroll while simplifying and automating processes. This keeps payroll internal, meaning school staff will need reliable systems to ensure all employees are paid accurately and on time.

Pros of in-house payroll software include:

• Control over data. Without the need to export data to an external provider, some payroll risks can be eliminated.
• Oversight of all processes. Mistakes may be picked up faster or could be prevented altogether when academies have full visibility of their own payroll.
• Potential cost savings. High agency costs can be avoided, putting academies in greater control of their budgets.
• Specialist education-focused software features. Software is designed to automate and speed up payroll, and can be extended to cover other areas of HR as well.

These are some of the potential issues associated with in-house payroll software:

• Initial investment and ongoing costs. Your academy will need to have budget available to purchase software, as well as funding its ongoing use.
• Software implementation. This can be a complicated and time-consuming process – support from the software provider is key to a successful implementation.
• Provision for staff training. Staff will need to be given the correct access and should receive full systems training, which is usually offered by the software provider.
• Data security. Any software solution must be thoroughly vetted and meet the most rigorous data security standards.

How to choose between payroll options: A guide for academies

Here are some questions to answer, which will help guide your payroll decision:

• What is your budget? Even if outsourced payroll costs more, payments will often be split into monthly instalments so consider when budget will be available. Payment terms for payroll software can vary so ask for all information upfront.
• How much in-house capacity do you have? Both options will cut staff workload, though outsourcing will likely save more time if resources are tight. Capacity planning can provide helpful insights into available resources to guide decision making.
• How will you deal with regulatory compliance? Do you have the provisions in house and is your team up to date with the latest regulations?
• What will give you the flexibility to scale? Think ahead to the future of your academy and its expansion plans.
• What are your long-term goals? Consider goals for the school as well as for payroll. For example, if you plan to increase teacher retention and offer more flexibility, self-service payroll features and high levels of accuracy could feed into these aims.

Regulatory compliance and data security

Academy payroll must be compliant with the necessary HMRC regulations and data protection laws. These are some key considerations:

• GDPR. Schools hold and process large amounts of sensitive personal data that needs to be dealt with according to GDPR regulations. The key priorities are safe storage of data, and ensuring that it cannot be accessed by unauthorised people. If you use payroll software, ensure it meets with GDPR regulations. And if you outsource payroll, check the provider’s credentials.
• Income tax. All employees on the payroll must pay the correct amount of tax and records must be kept accurately. It’s essential to stay on top of new developments each tax year, such as changes to the personal allowance.
• Right to work. Before an employee is added to the payroll, their right to work in the UK must be established through pre-employment checks.
• Gender pay gap reporting. This is required for any organisation that employs 250 people or more. Note that in the case of an academy, reporting responsibilities fall to the proprietor of the trust.
• IR35 tax legislation. This legislation helps to ensure workers pay income tax when they are not permanent employees. The complication comes when deciding if IR35 is applicable to someone working for an academy, and this is the school’s responsibility.

For each of these points, ask payroll providers for their policies, or consider how you will deal with the requirements in house. This can help scope out the right solution.

The best payroll options for your academy

Outsourced and in-house academy payroll can both be a good fit for academies and MATs. The decision will ultimately depend on the size of your academy, the number of staff you employ, your in-house resources, growth plans, available budget, and many other factors that are unique to your institution. The decision-making process is critical to finding the best solution – consider all factors carefully and work with the wider team to assess options.

Access Education offers payroll solutions to academies across the UK. Our managed payroll services have a 99.9% accuracy rating, and a 100% pass mark from the Chartered Institute of Payroll Professionals’ Payroll Assurance Scheme. Our in-house payroll software is designed to grow with your academy, giving you full control while reducing the administrative burden. Learn more about payroll solutions for academies and find out more about pricing.