Due Diligence in Payroll Procurement

Due Diligence in Payroll Procurement

Choosing a payroll supplier is a critical decision for any organisation. Payroll is a core function and one that directly affects employee satisfaction, compliance with legislation and the financial health of an organisation. Frontier Software Consultant, Sandra Walker, encourages due diligence before partnering with a payroll supplier to ensure their software and service is reliable, secure, and capable of meeting your needs. With over 25 years of experience in preparing tenders and proposals, Sandra provides key considerations when evaluating payroll supplier credentials.

Specification of Requirements

Prepare a specification of requirements with input from all stakeholders. Identify your ‘must haves’ and ensure that these are qualified at demonstration stage. If there is functionality crucial to your organisation, then emphasise the importance of compliance and ask to see evidence that the supplier can meet the requirement.

Compliance and Certifications

Ensure that the payroll supplier complies with all relevant legislation and verify any claims made in a proposal, e.g. system is recognised by the HMRC PAYE Recognition Scheme. Look for certifications such as ISO 9001 as these show the supplier adheres to high standards, and that their processes are audited by an external body. Ask to see copies of certificates.

Industry Experience and Reputation

Evaluate the supplier’s experience in handling payroll in similar organisations. A supplier with extensive experience is likely to understand any industry-specific challenges and regulations, ensuring smooth payroll management. Check for client testimonials or references, focusing on areas such as accuracy, timeliness, and issue resolution. A strong track record of reliable service delivery and positive feedback from other clients is a good sign of trustworthiness.

Data Security Measures

Payroll data includes sensitive information so ensure the supplier uses robust encryption protocols to protect this data. Investigate their data backup and recovery processes to confirm they can safeguard information against cyber threats and physical disasters. Ask about their compliance with data protection laws, such as GDPR, and accredited certifications such as ISO 27001 for data security. This certification shows the supplier adheres to high standards of security and operational excellence.

Technological Capabilities

Modern payroll systems often involve cloud-based platforms, integrations with accounting software, and employee self-service portals. Assess the supplier’s technological capabilities to ensure they align with your requirements. The system should offer scalability to accommodate growth and flexibility to adapt to evolving needs. Confirm that the software is user-friendly and includes automated calculations and compliance reporting.

Financial Stability

A payroll supplier’s financial stability is another critical factor. Since payroll is a recurring service, the supplier must have the resources to sustain operations and manage large transaction volumes. Request financial statements to ensure they are in a strong position to support your organisation long-term.

Customer Support and Service Levels

Effective customer support is crucial for resolving payroll issues promptly. Assess the supplier’s customer support structure, including response times and availability. Ensure they offer support during core business hours and have dedicated account managers to provide personalised help. 

In conclusion, performing thorough due diligence when selecting a payroll supplier protects your organisation from potential risks, such as financial loss, HMRC penalties, and employee dissatisfaction. By evaluating factors such as compliance, reputation, security, and customer service, you can confidently choose a dependable partner to handle your payroll needs.

Article originally published on Public Sector Focus February 2025.