Choosing a Payroll Software That is Right for Your Business

Posted on 11 August 2011 by Noreen Munro

Payroll Software

With a vast array of payroll software companies offering a multitude of different payroll software options, how does a business go about choosing the right software for their payroll?

Smaller companies of less than 10 employees may consider using HMRC's Basic PAYE Tools for the payroll processing. This is easy to download from the Business Link website and is completely free. However, as the name suggests, this is a very basic application for payroll processing and its functions are limited.

If your organisation is larger than 9 employees and you prefer to process your payroll in-house rather than outsourcing to an established payroll bureau, you will probably want to consider some more options. Payroll software packages come with varying degrees of functionality and filtering out what is suitable for your needs can become daunting.

Some things you will need to consider:

HMRC Accreditation

Is the software package HMRC accredited? If it is, then it will bear the HM Revenue & Customs (HMRC) Payroll Standard logo.

The HMRC Payroll Standard accreditation logo is awarded to payroll software products or services that satisfy the requirements of the Payroll Standard.

A full list of payroll software products meeting these requirements can be accessed from the HMRC website.


Cost is a factor to all businesses. You need your payroll software to provide all the functionality you require currently and also be able to adapt to a growing business. However, it would be pointless to spend thousands of pounds on a software product when you only have a few employees. Identify what you are likely to need from your product and justify the expenditure.


The most important factor to determine before purchase is the suitability of the software.

How many employees can it process? If the answer is 50 employees and you currently have 45 there will not be much scope for expansion.

What pay frequencies will the software be able to calculate? Many will cope with weekly or monthly frequencies without difficulty but a good payroll product will also be able to calculate fortnightly and 4 weekly payrolls.

Can Directors NI be calculated automatically? Directors pay National Insurance differently to other employees and if directors are to receive a salary through the payroll, then this is an important consideration.

Are you able to set up unlimited pay or deduction elements? Employees prefer to see accurate descriptions on their payslips so they can be sure of what payments they've received.

Can the payroll software calculate 'net payments'? These are when you wish to pay an employee an amount net of tax and NI. It is useful if the software can 'gross-up' these payments for you.

Pension Schemes

Even if you do not currently offer your employees a company pension scheme you should consider a product that can calculate pension schemes such as:

  • Contracted out
  • Stakeholder
  • Money Purchase

The government's pension reform will be introduced from October 2012 and this will require all companies to automatically enrol employees into a company pension scheme or The National Employment Savings Trust (NEST).

Web based or PC/Server based

Many payroll products are now web based, and as with anything there are pros and cons. The choice of web or PC based is really dependant on the business and the application's users.

Web based

  • Ask about the security procedures. You have no control over the supplier's servers so you want to be reassured about the steps they take to protect your employee's personal data. The application should use be accessed by Hypertext Transfer Protocol Secure (HTTPS).
  • How often the servers are backed up and how are the back-up files stored? There should be at least one copy stored at a different site from the servers.
  • How easy is it to restore or roll back your payroll data if you need to?
  • Updated are usually automatic, saving time with installation.

PC/Server based

  • You have control over access and security of server.
  • Is the software easy to install?
  • How easy is the software to back up, restore and/or rollback?
  • How often software updates are released and is there any additional charge for these?

With either of these options, it is imperative to know about the security of the product. It should be a requirement for users to have a password to access the application and preferably with special characters such as '@','#' or '$'.

How many users can access the application? If you have a large payroll, you will probably need multiple users to access the software at the same time. You may also want the option to reduce some users' access. E.G. to allow some users to view data without making alterations or to only allow senior staff to view/alter manager's details.

Attachment of Earnings Orders

Occasionally you may receive an attachment of earnings order to apply to an employee. This is when a court has ordered for deductions to be made from an employee's net pay to satisfy an unpaid debt. As an employer, you are legally obliged to make these deductions on behalf of the court and forward the recovered amounts to the relevant body. Typical attachment of earnings orders (AOEO) may be:

  • Council Tax Orders
  • Child Support
  • Fines Enforcement
  • Priority Order
  • Non-Priority Order

Making these deductions will be much simpler if the payroll software is capable of calculating the correct deductions. As employers are also entitled to deduct a sum of £1 per pay period for every court order it is also beneficial if this can be set up within the software.

Reporting & Cost Analysis

The majority of payroll products will have standard reports already designed for you to run each pay period. However, is there the facility within the application to alter reports and even design your own?

This will be beneficial if you require more in depth analysis on departmental costs or if you wish to report on a particular pay element for example.

Whatever the reasons, payroll reporting is an essential tool for any business and we will cover this in more detail in a future blog.


The most important consideration for payslips is the on-going cost of stationery and printing. Blank payslips can be expensive, especially when purchased directly from the payroll software company.

It's wise to investigate the possibility of purchasing similar payslip stationery from alternative providers or even the potential to alter the payslip lay out to suit your requirements.

Some payroll products have the functionality to print pre-templated payslip information onto plain paper or even to email electronic copies directly to employees. This is an excellent solution as it reduces paper usage but it's imperative that these can be password encrypted.

Electronic Data Interchange (EDI)

HMRC now requires all employers to submit data such as P45's, P46's and year-end reporting to them on-line.

Many payroll products will have an EDI link allowing you to submit data directly to HMRC from within the application as well as receiving information such as tax code changes.

The alternative is to re-input the data manually into HMRC's web portal. This may not be too much of an inconvenience to a small employer but larger organisations will find this a time consuming task.

Making Payments

Once you have processed your payroll and calculated the net pay figures due, how will you make the payments to your employees?

Many small businesses manually enter the amounts due into the online banking facility but as a company grows this may not always be suitable.

It would be wise to enquire into the payroll software's ability to provide BACS files ready for importing to a separate BACS facility. This may be in the form of BACS IP software or an upgraded online banking solution such as Barclays Business Master, NatWest Bankline etc.

A few reasons for paying by BACS include:

  • Employees in the accounts department that have access to company bank statements will not be aware of the net payments due to other employees as BACS files leave the account as a lump sum.
  • No need to manually input individual payments.
  • If sent on a 3 day BACS payment there is the option to recall individual payments or even an entire BACS file if an error is spotted after transmission (dependant on your bank T&C's).
  • Changes to employee bank details will automatically be applied to the BACS file when updated in the payroll system. There is no need to manually alter the employee record within your online banking.
  • Improved cash-flow as the payments do not leave the company bank account until pay day.


Finally, the absolute key to making a success of your new payroll software is support. You may be happy to pay for staff training initially but what happens if the software goes wrong?

All software products are only as good as their programming. Programmers are human, and humans make mistakes.

At some point in the future you will probably need to contact the software providers for help, and this can be costly if you do not already have a support plan in place.

Before you make any purchase, enquire about ongoing support. You'll want to know the level of support offered (email, telephone, site visit etc) and the costs involved.

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