How To Choose Payroll Software

12 July 2022

Before businesses went digital, payroll management consumed significant time and resources. Businesses had to juggle employee schedules, hours worked, and vacation days while ensuring that each employee got paid correctly and on time. If there was a mistake, it could take days or even weeks to resolve the issue. As businesses grew and added multiple employees to their books, payroll became even more complicated to manage.

Now businesses have various new payroll software options that can streamline and automate many of the tasks involved in payroll. This makes it easier and faster to process payroll while reducing the risk of errors and helping ensure tax compliance. But with so many different software options on the market, how do you know which one is right for your business? In this article, we’ll discuss how to choose payroll software and the different features to look for.

What Can You Use Payroll Software For?

The traditional method of payroll processing entailed a lot of manual data entry, which was both time-consuming and error-prone. With data spread across different departments and systems, it was difficult to get a holistic view of payroll. Using a payroll system, small businesses can easily manage many of the tasks involved in payroll in a single place, integrated with other accounting functions, including the ones outlined below.

  • Tracking employee hours: Payroll software can track employee hours worked, either through manual input or integration with time tracking software. This data is then used to calculate things like contractor payments and salary structure.
  • Processing payroll: After tracking employee hours, your payroll system can calculate wages and deductions and electronically file tax forms. It can then generate pay stubs and direct deposit payments.
  • Filing taxes: Payroll software can file payroll taxes on your behalf and generate pay slips showing how much income tax was deducted from each employee’s paycheck. Automating this process makes it easier to stay on top of tax regulations.
  • Managing benefits: Some payroll software can also manage employee benefits, such as health insurance and retirement savings.
  • Calculating bonuses: If your business offers bonuses, your payroll program can help you calculate and distribute them based on employees’ hours worked or performance.
  • Send information to HMRC: In the UK, businesses must send information on employee earnings and taxes paid to HMRC. Payroll software can generate the necessary reports, including real-time information, and file them electronically.

Why Should You Use Payroll Software?

Many businesses find that investing in a payroll system is a huge-net positive for their business. Apart from making it easy to manage many routine tasks, it can allow you to get a better understanding of your employees’ hours and compensation. Understanding the big picture is crucial to any business — it can help you make informed decisions about employee compensation, bonuses, and benefits. For example, if you’re calculating project budgets, you need to be able to assign payroll costs accurately to different projects. Payroll software can also give you the insights you need to make data-driven decisions about your business.

Here are some of the best payroll software benefits:

  • Reduces the time spent on payroll: Payroll software can help you manage and automate many of the tasks involved in payroll management, which extends from tracking employee hours to arranging direct deposits. This helps free up significant time for business owners and managers to focus on other tasks.
  • Reduces the risk of errors: With payroll software, businesses can reduce the risk of human error during calculations. This is important because even a small mistake can have major consequences. An example of this would be underpaying or overpaying employees, which can lead to legal issues.
  • Ensures tax compliance: Payroll software can help businesses stay legally compliant with tax and payroll laws and regulations. This is important because non-compliance can lead to heavy fines from government agencies.
  • Increases efficiency: Payroll software can make the payroll process more efficient by automating tasks and generating reports. This helps to save time and money in the long run.
  • Provides transparency: Payroll solutions give businesses transparency into their payroll process. This is important because it helps companies identify and correct any errors or inefficiencies.

Tips for Choosing Your Payroll Software

If you decide that you want to invest in a payroll system for your business, you’ll need to choose software which meets your specific needs. To make things easier, you could start by asking yourself a few key questions. Here are some useful examples of questions you can ask below.

What Payroll Software Features Do I Need?

Most payroll software applications have the same key features, but additional capabilities will vary from vendor to vendor. Before you make the dive, be clear about your specific needs, so you can choose software that’s a perfect fit for your business. Here are some features to look for:

  • Auto-enrolment in a pension scheme: In the UK, businesses must automatically enrol eligible employees in a pension scheme. Many payroll software applications help with this process by calculating employee contributions and sending them to the pension provider.
  • Generating payslips: All payroll software applications will generate payslips, but some have more options than others. For example, some software will also produce paper payslips that you can distribute to employees, while others will only generate electronic payslips.
  • Filing taxes: Tax filing is a key function of any payroll package. Before you choose a software application, ensure it meets your specific tax filing needs. For example, some software can file real-time information (RTI) to HMRC, while others cannot.
  • Pay rules: Payroll software can automate paying employees based on the rules you specify for each pay period. Are your employees paid bi-weekly? Or do you employ salaried staff paid on a monthly basis? Before you choose a software application, make sure it can run payroll according to your employees’ pay rules.
  • Multi-user access: Depending on how many employees you have, it might be necessary for your software to have multi-user access.

What Are My Reporting Requirements?

Most payroll software applications can generate reports, but the types of reports offered will vary from one software vendor to another. Before you choose a software application, consider the types of reports you need and ensure the application can generate them. Here are some examples of the most basic reports that payroll software applications can generate:

  • Payslip report: A payslip report shows the details of an employee’s pay, including gross pay, deductions, and net pay.
  • Tax report: A tax report shows the amount of taxes deducted from an employee’s pay.
  • National insurance report: This report shows the amount of national insurance deducted from an employee’s pay.
  • P60 report: A P60 report shows an employee’s total pay and deductions for the year.
  • P45 report: A P45 report shows an employee’s total pay and deductions for the year to date.

How Much Support Do I Need?

Consider whether you might need additional post-purchase support. Many providers offer ongoing support options, so if you’re struggling with any aspect of the program, you can always give them a call.

Usability can vary considerably between applications, so if you want to avoid a steep learning curve, consider prioritising software that’s easy to use. Look for a payroll package that allows you to try before you buy or offers a free trial. This way, you can get a feel for the application and how user-friendly it is before you commit to a purchase.

Will I Be Able to Scale My Business?

The ultimate goal is likely to grow your small business. When that time comes, you’ll need to ensure you choose the right payroll software to accommodate your expansion. For example, will the system be able to support additional new employees? If you’re using a cloud-based solution, this might not be an issue, but if you’re using an on-premises solution, you might need to upgrade your hardware or purchase extra licences for an additional fee.

One of the biggest benefits of a payroll system is that it helps you scale up your business without incurring significant additional costs to process payroll. If you choose payroll software that can’t accommodate the growth of your small business, on the other hand, you could face difficulties further down the line.

Do I Want to Outsource Payroll Entirely?

If you don’t have the time, expertise, or inclination to deal with a standalone payroll software yourself, you might want to outsource payroll entirely to one of the many payroll companies that offer this service. In this case, you would need to choose a payroll services provider that offers an all-in-one solution. This type of solution would include software, support, and sometimes even hardware.

This is typically the most expensive option, but it’s also the most hassle-free. Outsourcing payroll duties doesn’t just save time — it also takes the responsibility off your shoulders. Payroll companies have the specialist knowledge and experience to process your payroll accurately and on time, every time.

What Is My Budget?

The cost is always a consideration when choosing any business software solution, and payroll systems are no different. However, it’s important to remember that the cost of a software application is not always directly proportional to its quality. In other words, just because one payroll solution costs more than another, it doesn’t necessarily mean it’s better. With that in mind, you need to consider your budget and what you’re willing to spend on a software application.

Most software vendors will offer different payment packages, so you can choose the one that best meets your needs. For example, payroll service vendors might charge a monthly base fee, while others might charge a fee per employee. There might also be additional fees for features such as direct deposit or support. If you choose an on-premise solution, you may just need to pay a one-off licensing fee. Once you’ve determined your budget, you can start looking for the right solution that also falls within your price range.

It could also be a good idea to consider the Total Cost of Ownership (TCO). The TCO is the cost of using a piece of software over its lifetime. This includes the initial purchase price, as well as any subscription fees, training costs, and support costs. When you’re comparing different payroll solutions, it’s important to consider the TCO. This will help you to choose the most cost-effective solution for your business.

What Does It Need to Integrate With?

If you’re already using other software applications in your business, you’ll need to make sure any system you choose can integrate with those applications. For example, if you use an accounting program, can the payroll application export data to it? Can it import data from it? Do you require BACS integration? What about your clocking-in system?

These are all factors you need to consider when choosing the right payroll software. The last thing you want is to end up with a solution that doesn’t work with the other software applications you’re using. If you don’t need to worry about integration, you have more flexibility in terms of the software you choose. However, software integration makes it easier to automate processes and can save you a lot of time in the long run.

Is The Software Secure?

Data security is not just a concern for payroll systems; it’s a concern for any application that stores sensitive data. However, since payroll systems deal with particularly sensitive information, such as employee bank details and salaries, it’s important to make sure any solution you choose is secure.

One way to do this is to check whether the software is compliant with GDPR. This is a legal requirement in the European Union (the Data Protection Act 2018 for the UK since Brexit), and it’s a good indicator of the software’s security. You should also check whether the payroll provider has any security certification, such as ISO 27001. Most payroll software is designed to be secure; however, you’re advised to undertake due diligence checks before making a final purchase.

Do I Need an Employee Self-Service Portal?

An employee self-service portal is a feature that provides employees with easy access to their payroll data online. This can be useful if you have remote employees or if you want to give your employees more control over their data. However, not all payroll software includes a self-service portal, so it’s something to check for before you make your purchase.

If you think your employees would benefit from the ability to access their payroll data online, you should look into solutions that come complete with a self-service portal. Otherwise, you can save yourself from the unnecessary expense by choosing software that doesn’t include this feature.

Does It Need to be Mobile?

If you want to be able to access your payroll software on the go, you’ll need to ensure it’s mobile-friendly. If mobile access is important to your business, then you probably need a cloud-based platform. This will allow you to access the software from any device with an Internet connection. However, if you don’t need mobile access, you can choose software that’s designed for desktop use. This can be a more affordable option in the long run, but there is usually a trade-off in terms of additional features and functionality.

Streamline Your Payroll Processes With The Right Software

Payroll systems help small businesses scale up their ability to process payroll without the need to invest in an in-house team. By automating important tasks and storing employee data securely, payroll software makes it easier to run your payroll processes smoothly.

To find the right software for your business, consider your specific needs and budget. Once you’ve found a solution that meets your requirements, you can focus on growing your business without the worry of payroll weighing you down.

Related articles in Accounting to support your technology adoption