Cash crop?

Using the local authority for services such as payroll isn't the only option. More schools are using third parties or bringing the payroll function in house to save money and improve the service they offer to staff. But is it worth it? In the case studies below, two schools share their experiences.

In-house payroll

Bringing payroll entirely in house is the other alternative to using the local authority. Business Manager Valerie Hopkins shares her experience of the process.

I had been keen to manage our own payroll for some time, knowing there was real potential to provide a high quality service for staff at a lower cost.

It was essential to be absolutely clear on our reasoning for the change; to be able to demonstrate that the decision would be based on efficiency, expertise and capacity, quality of provision, value for money and sustainability.

Weighing the options

So how did we evaluate our readiness? In terms of expertise, our finance officer had previous payroll experience. Two other staff were willing to be trained as back-up, one of whom also had some payroll experience, which would also help ensure the service was sustainable in the finance officer's absence. Time-wise, two days each month were already spent checking payroll print-outs, correcting errors and chasing up anomalies. A broadly equivalent amount of time would be spent managing our own payroll, so the capacity to do the job was there.

Not buying the payroll service would save us £6,500 a year. But in addition, we calculated that we would be able to generate (at the time) £5,000 annually in bank interest through holding funds prior to paying employer contributions. On the cost side, software, stationery and BACS fees would amount to around £1,000. The software supplier would also manage the monthly payroll run 'on demand' for a fee.

What would the impact be on the quality of provision? Accuracy would improve, we anticipated, as there would be nothing 'lost in translation' between school and provider. The service for staff would also be more personal and they could get immediate answers to any queries.

We would also have more flexibility, for example, to pay staff early for Christmas, and we could respond to changes more swiftly - so we would not need to abide by the local authority's early cut-offs but could contract changes/caretaker overtime right up to the run date which is around the 22nd of the month.

Liaising with the LA

There were a few other considerations. At the time, we purchased our HR service from the local authority (LA), so we needed to liaise closely regarding the interfaces. Our preferred route was to jointly develop a service level agreement in order to clarify and confirm who did what.

Has it worked? Yes, the LA were very supportive and our relationship remains good, although we do now spend time liaising with the pensions department at the LA, which was previously managed for us via the human resources department.

The LA was also very helpful in providing existing staff data in a usable format in order to populate our payroll system. Without their support, there would have been a hefty administrative burden at the outset.

There is a wide selection of payroll software both as a stand-alone and as part of an accounts package. We allowed a six-month period for investigating the options and making our selection. We built in time for parallel running of our new system alongside the current provision. In our case, this ran from January to March, having already given notice to the LA. As it happens, it was very smooth and the new system was bug-free, but underestimate the potential for problems at your peril. Allow at least three months for this phase.

Additional benefits

We have discovered some useful spin-offs over and above the advantages we had anticipated. The increase in average account balances held, through receiving salary funding direct, has enabled us to get better rates of interest.

Efficiency gains are in our own hands, for example, we're considering e-payslips. We use our own forms (not the LA's) for extra duty and site staff overtime. They are designed to collect the information the school needs and dovetail with our reporting systems.

Our expertise is valuable in the context of collaboration and partnership with other schools. We are well placed to offer a payroll service. And there is an increased respect among the school workforce for the work of support staff middle leaders (in this case the finance officer) who lead on professional service provision.

Has it been as successful as we hoped? A resounding yes, even though interest rates have fallen and interest income is currently lower than when we began. Payroll takes no longer to manage ourselves than it did to check, query and interface with the LA system. We save at least £10,000 a year and have a better quality product.

Above all, we have learned the vital importance of staff expertise. You can grow it, but it is great to have it at the outset. Would we do it again? Yes, without question.

Valerie Hopkins is a school business manager in the West Midlands.

Outsourcing payroll

Thistley Hough High School is a media and visual arts college in Stoke-on-Trent with over 800 pupils and 95 staff. In April 2009, it decided to outsource the payroll function to a company specialising in administration and management services. Michelle Davis explains.

We took the decision to outsource payroll to a third party as we wanted more control over our finances. This was driven by a frustration at the amount of time it took for budgets to be set and for the money to hit our tabs.

Additionally, the service from the local authority was a joint payroll/finance one, meaning we had to take both services under one service level agreement. Once we decided we no longer needed the finance service we also needed to become independent from the payroll service. To make the move, we had to find a partner we were happy to work with.

We asked our finance support company if they could recommend anyone to us, as well as doing our own independent research by speaking to other schools. Another option we considered was handling the whole thing in-house but we felt it would be more cost-effective to use a third party - plus we knew we would be getting payroll experts doing the job.

Teething problems

There were some obstacles to overcome. Initially, we struggled to get the full information needed for the changeover. There were also some elements that we hadn't appreciated we'd have to do ourselves, for example, sending the pension details to the county council which deals with the local government pension scheme for support staff. However, the teething problems have been ironed out over the last 12 months and I feel confident that we are going into this financial year in a much stronger position.

One of the huge advantages of outsourcing the payroll is that the school receives the information in real time. Because we get the wages bill well in advance of payment, there's an opportunity for me to verify the wages and make corrections if needed.

Previously we'd find out about mistakes when the wages were on the tabs - which we would get around six weeks after a month end. It meant that we never felt that we had a real grip on where our finances were. Now we have up-to-date information and our cash flow is accurate and effective.

Another advantage is the large cost saving. Through managing the payroll and finance with outside suppliers, the school has saved around £8,000 per year - plus we feel we get better value and that the reporting is accurate and relevant.

We have also been surprised at the speed at which some of the benefits have become apparent. While we had anticipated that there would be advantages, we didn't realise that we'd start to feel them immediately.

For example, the correction window of opportunity meant that staff didn't have to wait two or three months down the line for amendments to their salary to be rectified. They could be done within the correction window. Or, if that was missed, interim payments could be requested from Strictly Education. It means less stress for me and a much happier workforce.

Accurate cash flow

Outsourcing a management function such as payroll doesn't mean you can just hand everything over and sit back, however. As head of support services for the school, I take responsibility for managing the process.

I keep manual salary projections which are set up at the start of the year. It's a real working document that changes throughout the year and it gives me salary projections for the year end. I find this system means my cash flow is always accurate.

My advice to any school wondering about outsourcing is, if you decide to go ahead, allow plenty of time for the handover from the LA to ensure you have all the information you need - I'd say six months. When you receive the information, check it over thoroughly and make sure your pension support is not tied in with the payroll service level agreement. And be sure about who does what at the LA and which parts of the process you will have to take on at the school.

But it's definitely worth looking at outsourcing. The chances are you'll not only save money but find your payroll runs more smoothly and with less hassle than ever before.

Michelle Davis is head of support services at Thistley Hough High School and a member of ASCL's Business Managers and Funding committees.

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