All employers are required to submit PAYE information online each time they make a payroll payment under HMRC's Real-Time Information (RTI). RTI is designed to make the payroll process easier to manage and it has been integrated fairly unobtrusively by most organisations
There's a wealth of fantastic payroll software designed to make the promised reduction in paperwork a reality. What's more, what was once enterprise-only software is now available to those with smaller budgets and even fewer HR resources. So, which option is right for you?
How to implement a payroll system
Historically, smaller businesses shunned payroll tools, preferring to run a manual payroll setup. However, even the smallest of businesses will be better off using a payroll system.
There are three ways to implement a payroll tool:
- Add a payroll module to an existing accounting system.
- Implement specialised, standalone payroll software.
- Utilise HMRC's free, basic PAYE tools.
The method you choose will depend on your existing accounting systems, the number of staff you employ (and therefore how big a task payroll is) and your budget.
The pros and cons of a payroll system
There are pros and cons to any business tool, and payroll is no different.
Advantages of payroll software
- Low monthly fee. These days, software as a service (SaaS) is commonplace and a great payroll system can be implemented at a reasonable cost.
- Full control. Performing the payroll yourself puts you in the driver's seat. You'll have full control over employee wages, taxation and reporting.
- Data security. Outsourcing payroll duties or performing them manually can mean the data isn't always secure and that could only add to your list of worries with new GDPR regulations in place. Data security is always a key feature of payroll software.
- Time saved. Business software is designed to be efficient, helping to save you time compared with manual processes.
- Reduction in errors. If there's one area of business in which you want to avoid making errors, it's those all-important payslips! This major advantage is hard to ignore.
Disadvantages of payroll software
- Learning curve. If you're running a small business, you'll have a colossal to-do list and no matter how easy a piece of payroll software is, it's something else to learn.
- Data access. Most modern payroll systems are web-based. If you find yourself without internet connectivity, you can find yourself without access to your payroll function.
- Vendor risk. Putting all of your payroll eggs into the basket of a software vendor is inherently risky - what happens to your data if they go out of business?
Make a checklist to help you choose payroll software provider
Before you start hunting for payroll software, you should answer the following questions to narrow down the most appropriate vendors:
- Company size: how many people to do you pay on a monthly basis?
- Payment structure: do you have one form of pay or is there a mix of hourly pay, salaried staff and commission?
- Pay delivery: do you pay directly via BACS or by cheque?
- Employee location: are you all based in a single location?
- Scalability: how will your business grow over the next three to five years, and what effect will that have on staff numbers and your wage structure?
- Available hardware/connectivity: what IT hardware do you have to hand and is your internet connection fast and reliable?
- Support: are you relatively tech savvy or will you require assistance?
Decide on the payroll system features you require
Payroll software comes in many different shapes and sizes with most taking a modular approach to the features they offer.
To narrow your shortlist even further, consider the functionality you require. Here are some of the most common:
- RTI integration. Real Time Information is now required by HMRC for payroll. Any system you choose should have this capability.
- Automation. If your payroll rarely changes, the ability to set automated rules and scheduled payments is a must.
- Real-time calculation. Find out exactly what each employee is being paid (and how they're being paid) at any given time.
- Customisable pay rules. If you regularly pay bonuses, commission or overtime, you'll need a system that can be flexible and handle pay differentials.
- BACS integration. BACS is the most common way to pay people these days, so direct integration is vital.
- Tax filing. National Insurance and PAYE tax calculations are part and parcel of payroll and ideally need managing within the same system.
- Auto enrolment integration. UK businesses are now required to provide auto enrolment to a pension scheme and make payroll deductions.
Key questions to ask payroll software vendors
Use your payroll checklist and list of requirements to find the best vendor. A Google search for payroll software will unveil numerous options, therefore it's important you're armed with the right questions when approaching each vendor. Here are the key things to ask:
- How much does it cost? Is the system based on a one-off license fee or monthly/annual payment?
- How is tax handled? If you get taxation wrong, you'll land your business in hot water. Make sure you drill into the tax capabilities of each payroll system. Most importantly, ask what tax calculations - if any - are left to you.
- Will the system help you comply with pension auto enrolment requirements?
- Device compatibility. Can you access the payroll system on any device, from desktop computer to smartphone? In doing so, do you lose any functionality on smaller-screened devices?
- How far can the system be customised to match the requirements of your business?
- Multi-user access. Can you set up multi-user accounts (check if there's a cost for doing so), with varying levels of access? Is there an employee portal staff can use to download previous payslips and look up pay history?
- What support is offered? Does the system come with direct telephone/online support? Is there a knowledgebase or online video help directory to call on at any time?
- How secure is the service? Where is the data hosted and is it held in compliance with the new GDPR requirements? What up-time assurances are there and are there any fallbacks for when connectivity is an issue?
Examples of payroll software
We've picked out four examples of payroll software that may be the perfect fit for your small business.
1. MyPAYE (free trial, from £1 per month, per employee)
If you're already using the popular Xero accounting platform, MyPAYE integrates seamlessly into it by taking data from Xero to aid payroll processing.
- Emailed payslips
- P11D ready
- Free backups and updates
- Integrates with key auto enrolment pension providers and online accounts packages
2. Sage Business Cloud Payroll (free trial, 50% off for three months, 1-25 employees)
Sage has long been a market leader in business software, and their payroll software is admirably approachable for micro and small businesses.
- Free telephone assistance
- No payroll experience necessary
- Full auto-enrolment and RTI support
- Monthly subscription
3. Payroo (free for fewer than ten employees, £3 per month, per employee thereafter)
Payroo is a great little system designed entirely for small and medium sized business with a pricing structure to match.
- Automatic tax code updates
- P32 returns to HMRC
- RTI compatible
- Offers Sage Accounts integration
4. Iris (free trial and demos, packages prices according to requirements)
With over thirty-four years' experience in the business of accountancy software, Iris is one of the more fully-featured payroll solutions on the market, and is fantastically customisable as a result.
- Unlimited users
- RTI compatible
- Director's NICs
- Pension schemes
You can also compare prices for payroll software providers on the Approved Payroll Services website.
Payroll should never be seen as a burden. It's an essential task within business, no matter how small the organisation, and the new breed of payroll systems, coupled with admirable government-led initiatives means everyone can benefit from solutions designed to reduce paperwork and ensure pay accuracy.