Guide

Payroll software

Do you need payroll software?

Not every business needs payroll software. If your headcount is small and the calculations you need to carry out simple, you may be comfortable processing your payroll manually.

However, if you employ more than a few people, the right software can save you valuable time and money, and even improve your payroll accuracy.

Manual payroll vs computerised payroll

Manual payroll involves working out calculations for each pay period entirely by hand and keeping records on paper. This process is relatively cheap but tedious to prepare and liable to human error. It typically becomes more difficult to manage as you grow and employ more staff.

Computerised payroll uses software with built-in capabilities that allow the user to carry out routine payroll tasks more efficiently. It enables you to gather all payroll-related information in one place, electronically, and automate processes such as wage calculations, deductions, tax returns, reports, etc. See payroll software: what it can and can't do.

When compared to manual processing, automated payroll is typically:

  • quicker and more efficient
  • easier to track and maintain
  • more accurate
  • more robust in data protection
  • easier to keep up to date with the latest regulatory changes

See advantages and disadvantages of payroll software.

Should you get payroll software for your business?

Whether you should use a computerised payroll system or not depends largely on the size of your business and the type of calculations you need to carry out. It may be worth getting payroll software if you need to:

  • speed up your payroll calculations
  • keep on top of rates and allowance changes
  • avoid computational errors
  • send forms and reports electronically to the HM Revenue & Customs (HMRC)

Many businesses choose to automate their payroll. However, bear in mind that using payroll software makes you dependent on your computer system. If you're switching from manual to automated payroll, take steps to protect and back up your data and IT systems regularly.

You can typically buy payroll software on its own, or as part of a wider business management system.

Payroll software costs

UK businesses with less than ten employees can use free payroll software from HMRC. If you have more than ten employees, you may benefit from investing in a fully functional computerised payroll system. See different types of computerised payroll systems.

If you only have a few employees and you decide to purchase payroll software, keep in mind that costs may be greater than the advantages. The total cost of ownership of the new system may not always be obvious and may include:

  • the initial purchase costs
  • fees for system implementation, upgrades and maintenance
  • labour costs for staff involved in setting up or running the system
  • consultant or supplier fees
  • annual subscription costs (covering any regulatory or rate updates)

Outsourcing your payroll activities to an accountant or a payroll specialist may help you save time and reduce some of the costs. Read about the advantages and disadvantages of outsourcing your payroll.