The 6 biggest obstacles to building a world-class payroll operation

On-time and accurate payroll is essential to keep candidates and employees happy. In fact, saying that it is critical to the success of a recruitment agency wouldn’t be an overstatement. However, a large number of agencies learn to live with average or sub-par payroll operations. The blame usually goes to the lack of staff, lack of collaboration between various stakeholders, or the ineffectiveness of technology—all of which contribute to payroll operations challenges that can disrupt efficiency and compliance.

As one of the top payroll outsourcing providers, we are well aware of these challenges, especially when it comes to processing payroll for a large number of temporary workers. Add to this the need to comply with a series of intricate laws and HMRC legislation, and you begin to understand why it is not easy to build a world-class payroll operation.

What are Payroll Challenges?

Some of the biggest obstacles on the way to achieving payroll excellence are:

1) High rates of attrition, lack of trained payroll staff

Payroll processing requires a specific skillset and turn of mind. On one hand, you need someone who will understand IR35, Apprenticeship Levy, zero-hour contracts and the dozen other concepts & legislations that impact payroll processing. At the same time, the person needs to be patient, quick, untiring and ready to essentially perform the same tasks over and over again.

Needless to say, it is a laborious process and not many people are able to stay in this career for long periods. Unsurprisingly, the attrition rates are high. The one big challenge is to hire the right kind of people and to persuade them to stay on. Many agencies turn to outsourced payroll services providers because of the staffing continuity that vendors can provide.

2) Paper-based, manual process, outdated systems

While FinTech implementation and technology upgrades are on the list of finance leaders in the recruitment industry, most do not have the bandwidth to invest in the process. Add to this the changing laws and socio-economic conditions in the UK and the EU (GDPR, IR35, Brexit) and you realise that too much time is spent fire-fighting.

However, other agencies are replacing manual paper-based processes with digitised/automated solutions – and reaping the benefits. In this scenario, any agency that doesn’t modernize its systems is likely to lose the competitive advantage in the long run.

Why? Because manual and paper-based processes are the number one reason for delayed/incorrect payments, missed payments, frequent adjustments and an overall lack of visibility on the process.  A world-class payroll operation is built upon the foundation of robust, effective technology.

3) Inefficient processes and lack of standardisation

A number of people are involved in collecting the data the goes into the making of a timesheet. The timesheet is then processed by a separate team, and many others are involved in releasing the payments and collection of payments from end clients. How all the people and systems involved in this activity collaboration have a major impact on the efficiency of the operation – each person must have clarity on their responsibilities and must carry out their tasks precisely.

To make this possible, the process must be clearly defined and written down – a documented process brings greater clarity. At the same time, it is important to assess the process, identify weak links, plug loopholes, inject best practices and carry out activities for continuous process improvement.

4) Compliance with ever-changing regulations

Payroll laws, tax regulations, and labor policies are constantly evolving, making compliance a major challenge. Changes such as IR35, National Minimum Wage updates, and pension auto-enrollment requirements mean payroll teams must stay up to date or risk costly penalties. Recruitment agencies operating across multiple regions face even greater complexity due to varying tax rates and legal requirements. Without a strong compliance strategy, businesses can struggle with audits, legal risks, and reputational damage.

5) Data accuracy and integration issues

Payroll relies on accurate data from multiple sources, including timesheets, HR systems, and accounting platforms. Errors in employee records, incorrect tax codes, or missing timesheets can lead to delayed or incorrect payments, causing frustration among workers and compliance risks for the agency. Additionally, outdated or disconnected systems make it difficult to sync payroll data, leading to inefficiencies and unnecessary manual work. A seamless, integrated payroll system is crucial for error-free operations.

6) Cash flow management and funding constraints

Payroll is one of the largest expenses for recruitment agencies, and ensuring there’s enough cash flow to cover weekly or monthly wages can be a challenge—especially when clients delay payments. Agencies must balance paying their workers on time while waiting for invoices to clear, which can strain finances. Without proper forecasting and cash flow management, even a minor delay in payments can disrupt payroll operations, leading to dissatisfied employees and potential legal issues.

How would you rate your payroll operations?

Are your payroll operations world-class? Merely excellent? Average? Sub-par?

As one of the leading high-volume pay & bill providers for the recruitment industry in the UK and EU, we run a tight ship. Annually, we process over 1M timesheets with an average accuracy rate of 99.8%. Not only have our services helped many of the leading recruitment agencies to streamline their payroll processes, but we have also helped them save up to 50% on operations costs. Here’s an example: How an agency saved over 6.5 million pounds by partnering with QX.

To learn more about how agencies can achieve payroll operational excellence, please get in touch with us.

Originally published Aug 20, 2018 03:08:36, updated Mar 20 2025

Topics: Pay & bill Process