If you are an employer, choosing the right small business payroll software will pay off. Whether you have just one other person on the books or a whole team working for you, your legal requirements will be the same, so staying compliant with HMRC rules is a must.
But with so many payroll tools available, from simple pay stub generators to fully automated systems, it can be difficult to know not only which is best for you, but also which advanced features are worth it.
Choosing the right payroll software is more important than you think as it reduces administrative workload whilst ensuring accuracy, keeping you compliant with HMRC rules and avoiding potential fines.
What is payroll software?
Payroll software is all about giving your employees the right amount of compensation in a legal and compliant manner. It is an absolute must for anyone who employs other workers because it is their right to be paid on time.
Paying an employee isn’t as simple as transferring some money via bank transfer. It must go through the correct channels and you must make the correct deductions and contributions, such as paying back taxes and student loans.
It also links that earner’s information directly to their Social Security number, making them eligible for government benefits such as healthcare and retirement.
From a business perspective, payroll software helps managers calculate salaries, hourly wages and overtime, and puts all the data into a clear pay slip for effective administration.
Many tools also include vacation tracking and sick leave calculations for the more irregular swings, plus a host of other features that we’ll explore below.
Why choosing the right payroll software is important
As an employer, you have responsibilities towards both the government and your employees. It’s all about delivering money and reporting to the right people, at the right time.
However, many small businesses don’t have endless resources, and choosing the right payroll software can have even more benefits, such as reducing administrative time related to data entry.
Software developers are also tasked with keeping up to date with HMRC guidelines so you don’t have to. For example, automated tax calculations based on this information reduce the risk of employees paying too little or too much.
What are the most important features to look out for
Automatic tax calculations
No one is asking you to become a tax expert. An accountant will certainly help, but accounting fees can be high, so having tax information on hand before turning your finances over to a third party is a good starting point.
Good software calculates PAYE, national insurance, student loan repayments and other statutory payments.
RTI submissions to HMRC
The government makes RTI (Real Time Information) submissions mandatory. So look for software that sends payroll data to HMRC, sends reminders before deadlines and confirms successful submissions.
This is so that the tax authorities can ensure that the tax codes are correct, meaning that no adjustments (additional payments or refunds) are needed at the end of the year.
Generating pay slips
Pay slips are not only a legal obligation, but they are also perfect for keeping your administration. Good payroll software creates digital pay stubs, emails them to employees, and stores them safely in case the company (or employee) needs them in the future.
Automatic pension registration
If you employ staff in the UK, you will need to enroll eligible employees into a pension scheme and offer contributions in addition to the contributions your employees decide to put aside.
This private pension is separate from any AOW pension, but your software should still automate or simplify this.
Self-service for employees
Although much of payroll is one-way, sometimes employees need to access lost information or update their data.
It is a relatively simple task, but is often added to the bottom of the administrative list. They can download pay slips and P60s in one place via self-service portals.
Keeping track of vacation and medical expenses
If you’re new to hiring, it’s easy to forget that employees won’t fully complete their ‘x’ hour contract every week.
Sometimes there will be illness, sometimes there will be annual leave and sometimes there will be unforeseen absences. Adjusting wages and charging statutory sick pay is a must.
Security and data protection
This software handles a lot of very personal and sensitive information: employee details and how much they earn are all in one convenient place.
Look for software that has strong encryption (at rest, not just in transit) and is GDPR compliant. Protecting your account with two-factor authentication also serves to block prying eyes.
How much does payroll software cost?
Free payroll software is not that common, but the government does offer its own ‘Basic PAYE Tools’ package for very small businesses with fewer than 10 employees.
You can do everything legally expected of you, but this suite lacks advanced reporting and many of the features mentioned above.
Be wary of companies that want to charge you per employee as costs can add up quickly and there is no real cost to adding more staff other than negligible storage space. Some may charge you extra for year-end filing fees, so look at the total cost of ownership (TCO) and don’t just settle for the cheapest.
Summary
By choosing the right payroll software for small businesses, you can save time on administration, reduce errors and, most importantly, ensure you remain compliant with HMRC regulations.
Most platforms automate calculations, process RTI submissions, and simplify retirement benefits, but the best stand out for advanced security, powerful employee self-service, and ease of use.
So, when choosing the perfect small business payroll software, keep in mind that almost any solution will cost you money, and it should have the flexibility to grow with your business and make an HR person’s job less stressful.
