Do I need payroll software for my business? | moneyfacts.co.uk

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Published: 10/12/2020

At a glance

  • Payroll is a core part of your business, and with the right software at your disposal, you may not need to outsource.
  • Payroll software needs to be approved by HMRC and can offer a range of features, but it always needs to be able to complete the most basic of payroll tasks and must offer real-time reporting.
  • You can get both free and paid-for software packages, depending on whether you have a small or large number of employees.

Should I do my own payroll?

As a business owner, payroll will be one of the most important aspects of company management. Given its importance, a lot of people choose to outsource their payroll needs to an accountant, but this comes at a cost. Instead, why not do it yourself? The thought may initially be daunting, but as long as your payroll needs are uncomplicated, it’s perfectly possible to complete such tasks on your own – you just need a bit of digital savviness, and the right tools at your disposal. This is where payroll software can come in.

Do you need payroll software?

If you’re going to do payroll yourself, then yes, you need payroll software at your disposal – and it needs to be approved by HMRC. You can choose between both paid-for and free software packages, depending on the features required and the complexity of your payroll.

No matter whether you pay or opt for the free versions, you should be looking for payroll software that will allow you to report to HMRC in real-time (otherwise known as being RTI compliant) and can help with tasks such as recording employees’ details, working out their pay, and calculating your PAYE bill. It can help streamline the process and ensure that all necessary information is collated and recorded.

Some software can even offer additional features, such as producing payslips and recording pension deductions, paying different people over different periods, and even sending Employer Payment Summaries (EPS’) or Earlier Year Updates (EYUs) straight to HMRC. The type of features you’ll look for will depend on your business needs and the number of employees you have, but suffice to say that the right software can be incredibly beneficial.

How does payroll software work?

Payroll software works by keeping track of all necessary employee details, requiring you to input information such as hours worked, salary, leave considerations and tax details. Then, from the information provided it will work out how much you need to pay your employees, and will calculate any income tax and NI that must be deducted from the gross figure. This net figure will be paid to the employee, and the rest will be sent to HMRC.

Real-time reporting is also a key feature of payroll software, as HMRC stipulates that it must have all of your monthly payroll information no later than you pay your employees. Your software will send the necessary information to HMRC, after which you’re free to pay your staff. Some software will even pay your employees for you, generating payslips in the process.

What is the easiest payroll software to use?

The answer to this question is arguably as individual as you are, as everyone has their preferences when it comes to technology. Some prefer the simple, Excel-like interface of BrightPay, for example, while others might find the wide range of features offered with Sage the best and easiest way to manage their payroll requirements. Those who need a full suite of accountancy tools may want to consider the likes of FreeAgent, a cloud-based fully-fledged bookkeeping solution that comes with a payroll add-on, or Xero Payroll, another plugin for a cloud-based accountancy system that could prove to be a convenient option for those wanting to keep their bookkeeping streamlined.

The answer could be to research several software packages beforehand to see which one could meet your needs, thereby getting an idea of the interface and features offered to find the one that suits your management style.

How much does payroll software cost?

This depends on the features you’re looking for and the number of employees you have, together with if you only need it for payroll or if you want it to be part of a broader accounting package. For example, if you’ve got 10+ employees, all of whom are paid different amounts over different periods, you can expect to pay more for your software than someone with two employees that they pay a set amount each month. And in some cases, the simplest of payroll software can be used without paying anything at all.

Is there a free payroll software?

Yes, and HMRC even has a list of free payroll software packages that are RTI compliant and suitable for businesses of up to 10 employees. This includes its own software, Basic PAYE Tools, which will allow you to complete most payroll tasks, including working out the tax and NI for your employees and reporting this information to HMRC. However, it freely admits that there are some limitations with the tool and that it isn’t designed for businesses with a lot of employees, as is the case with most free software packages. It’s also worth remembering that some “free” software will only be so for a limited period, so make sure to check the small print before you make your decision.

Which free payroll software is the best?

The best free payroll software will depend on your business’ individual requirements, so as with paid-for packages, it’s worth doing your research to see which one has the features that can meet your needs. 

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

At a glance

  • Payroll is a core part of your business, and with the right software at your disposal, you may not need to outsource.
  • Payroll software needs to be approved by HMRC and can offer a range of features, but it always needs to be able to complete the most basic of payroll tasks and must offer real-time reporting.
  • You can get both free and paid-for software packages, depending on whether you have a small or large number of employees.

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