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A guide to payroll software

Learn why and how you need to integrate payroll software into your operation to efficiently pay your employees and tax
Rachel Bridge

/ Last updated on 5th November 2017

An empty chair next to a computer and calculator for working out payroll through software.

Payroll software helps you organise and carry out the task of paying your employees their salaries each month.

Related: A guide to accounting software

How does it work?

There are two main types of payroll software:

1. one that you buy up front and download onto your computer

2. one that you access online and pay an ongoing monthly fee.

Both connect up to HMRC’s online PAYE reporting system, so you can automatically send them the information they require.

Why do I need a payroll software?

Working out your employees’ payslips can be a real headache. Simply working out the basic salary can be hard if you need to take into account overtime, sick pay, maternity leave and so on. On top of that, you must calculate tax, benefits and both employer and employee contributions. Finally, you need to make sure that all the bank details are correct and that you pay everyone on time. Nightmare.

The practicalities

A basic payroll software package will enable you to do all of the above plus print out pay slips. If you opt for an online version, it will automatically update with any changes in government employment legislation. Higher-spec versions also enable you to print out HMRC-approved forms such as P11D and P46.

Things to consider

Payroll can be both complicated to set up and administer as well as time-consuming. Instead of investing in payroll software, you might also want to think about outsourcing the entire payroll function to a third party.

It can cost as little as £8 per employee per month, and it will save you hours of effort and frustration. As your business grows, there will be a point when it will naturally make sense to bring your payroll in-house. For the first few years, however, let someone else deal with numbers and taxes, so you can focus on scaling your business instead.

Top tip

If you buy your payroll software from the same manufacturer as your accountancy software, you will be able to integrate the two systems.

How much does it cost?

The price goes from around £110 plus VAT for downloadable software, and from £5/month plus VAT for an online version. If you want to outsource the whole thing, it starts at £8 per employee/month. There is also some open source software available but these can be complex.

HMRC also provides a free downloadable P11 calculator as part of its Basic PAYE Tools package. The P11 will automatically complete payroll calculations, although it does not offer all the functionalities of a commercial package.

Where can I find out more?

Companies which provide payroll software include Sage, Inuit, Kashflow, Microsoft, Netbooks, Accountz Iris and Midland HR. HMRC provides a list of approved payroll software providers on its website.

Related: A guide to taxation in the UK

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