A guide to payroll software

Deciding which payroll software to use for your business is not an easy choice. There is no one-size fits all solution and it depends on the size of your business, how many people you employ and the complexity of the payroll.

Payroll software offers more than just wage calculations and payslip printing. Finding the right tool enables you to submit critical payroll data to HMRC and keep up-to-date on your pension obligations.

This article discusses what you should consider when choosing payroll software.

Alternatively, you can employ your accountant or a Payroll Bureau to complete this for your business. We offer this service at Wright Vigar and will be pleased to discuss this with you.

What is payroll?

In its simplest form, payroll is the process of calculating how much to pay your employees.

How often payroll is run is entirely up to you, but typically it is run on a monthly or weekly basis.

The payroll process is in theory very simple. You work out how much to pay your staff, minus the correct level of Income Tax, National Insurance Contributions (NIC) and other deductions like student loan payments or pension contributions. Whatever is remaining after these deductions is paid to your staff.

The money that you hold back for Income Tax and NIC is paid to HMRC. Additionally, you also have to inform HMRC who you have paid, when it was paid and the amount. This information is sent to HMRC using Real Time Information (RTI).

The overlap between Payroll and Accounting software

It is important to briefly discuss the overlap that exists between some payroll and accounting software as they can sometimes be confused.

Accounting software focuses on recording and reporting a business’s financial transactions including tax and payroll. The payroll function may be included as a standard feature or made available as a paid add-on.

Whereas dedicated payroll software comes fully loaded to record more information like tracking benefits, clocking time worked and employee attendance.

When choosing software, we recommend you carefully think through the functions you need the software to be able to perform before parting with any money.

Types of payroll software

There are numerous providers supplying payroll software, including well-known brands like Quickbooks and Xero, and smaller less-known brands. Generally, payroll software can be divided into two categories; free and paid-for.

Free payroll software is suitable for microbusinesses (typically a business that employees less than five people) and whose payroll process is less complex.

For businesses with five or more employees we recommend that you invest in a paid-for payroll software as they tend to offer more features as standard and are designed to handle more complex payroll calculations. Or employ your accountant or a Payroll Bureau to undertake this work.

Features of payroll software

Most payroll suppliers are moving towards cloud-based systems. Cloud-based systems are solutions or systems that are made available to users via the internet from a providers’ server.

Cloud-based systems have several benefits, including; it can be accessed anywhere that has an internet connection, it has proven to be more reliable than computer-based systems and because it doesn’t need a suite of software it is cheaper to buy, run and maintain the most up to date version.

As mentioned previously, the features that are available with payroll software differ per supplier. The majority typically tend to include:

Payroll management
Wages can be automatically calculated using a pre-set schedule e.g. weekly, monthly or every four weeks. The software can be set to take into consideration things like leave, attendance and benefits, and will automatically adjust the calculation accordingly.

Annual Leave management
Some payroll systems enable employees to submit leave requests and monitor their leave balance. On the flipside, employers can review leave requests and through the system notify their employee of its acceptance or rejection.

Some systems can calculate accrued leave and recalculate wages accordingly.

Expense management
Expenses and employee loans can be entered, tracked and calculated through the system. Some payroll software can also handle reimbursement for pre-approved expenses.

Deduction of taxes and contributions
A comprehensive payroll software can help you comply with HMRC regulations in terms of paying employees Income Tax and National Insurance Contributions and notifying them of payroll information.

A payroll system will automatically calculate an employee’s tax and NIC contributions set on a pre-defined information e.g. employees tax code.

Auto-enrolment
The pension reforms that were introduced under the Pensions Act 2008, states that every employer must offer a work place pension scheme and enrol eligible staff onto a scheme. This is commonly referred to as auto-enrolment.

Managing the admin tasks associated with auto-enrolment can be time-consuming. The good news is that some payroll systems can manage some of the auto-enrolment duties for you. For instance, it may have the ability to communicate with your employees to update them on auto-enrolment and provide an option for them toinformation on how they opt-out. It may even be able to automatically send accurate and up to date employee information to the pension provider without the need for you to upload it or email it to them. Some payroll systems can also calculate how much you and your employee’s will need to contribute each week or month and ensure the correct tax relief is calculated.

Time and attendance tracking
Some payroll software providers offer the ability to complete and submit timesheets and time-tracking to manage attendance. This feature enables you to monitor absence or leave and syncs with wage calculations, meaning your employees get paid the correct amount.

Reports / Payslips
One of the key features of payroll software is its ability to generate payroll reports, such as salary statements or a summary of employee leave or absence. A key benefit for employees is that they login, check and download and print their payslips.

Record keeping
Another important feature of payroll software is that the system operates as an employee database, storing important information and documents. This feature usually includes a document management facility, that enables the upload and storing of files, letters, tax information and identification documents.

What to consider when choosing a payroll software

Before investing in a payroll software, you need to determine what features you need the software to have and what would be nice to have. To help you choose wisely, we’ve put together a simple checklist for you to refer back to when looking at payroll software vendors:

Cost
As we’ve previously mentioned, the cost of payroll software differs per supplier and depending on which features are included as standard.

We recommend that you create a table comparing standard features and paid for features of each payroll supplier you are considering. This will make it easier for you to see which one offers the best value.

Additionally, you need to also consider if implementation, training and support are included in the monthly cost, or if there is an extra charge for this.

Scalability
You may currently only employ a small number of people, but if you have ideas for growth, does the payroll software have the ability to grow with you? If so, are there additional costs involved?

These are important questions that you should ask each vendor at the outset.

Can it integrate with existing systems?
It may be important for the payroll software to be able to integrate into existing systems, like HR and accounting systems that your company already uses.

If you are swapping payroll software suppliers, you also need to understand if the new software provider allows the import of information from your old system. This will save you from spending valuable hours manually inputting information.

We hope this article helps if you are considering payroll software for your business. Depending on the number of employees and the complexity of your business payroll you may prefer to let your accountant, or a Payroll Bureau complete this work. We have a dedicated Payroll Team at Wright Vigar with many years’ experience and we would be happy to discuss your requirements.

If you would like further information or guidance, get in touch with us on 0845 880 5678 or email website@wrightvigar.co.uk.