How to automate payroll: a complete guide

Payroll is a necessary part of running a business to ensure your teams get paid accurately and on time. Unfortunately, payroll accounting can be confusing—especially for small business owners who don’t have a dedicated department to handle these responsibilities. This is where automated payroll comes in.

In its most basic sense, automated payroll involves using dedicated payroll software to automate the process of calculating payroll - including taxes, deductions, contributions, and more. 

Learn what payroll automation is, how to automate payroll, and which systems are available with this QuickBooks guide.

Automating payroll: in summary

• Payroll automation streamlines a range of complex payroll tasks, saving you time and helping to improve accuracy

• Automated systems for payroll contribute to staying compliant with HMRC regulations, like tax codes, deductions and reporting.  

• Successfully implementing a new automated payroll process involves preparation, training—and choosing the right tool for your business needs.

What is automated payroll?

Automated payroll is the process of streamlining payroll tasks with appropriate software to reduce the amount of manual work required, making payroll as efficient as possible.

There’s a lot more work involved in payroll accounting than simply sending your employees money each week or month. To remain HMRC compliant, you should follow proper record-keeping and be aware of several things that affect an employee’s take-home pay, such as:

• National insurance

• Benefits

• Pensions

• Student loans and other deductions. 

These factors can change throughout the year and at each new tax year. They are also unique from employee to employee, all of which can make payroll complicated.

Automated payroll is designed to simplify each element and calculation, reducing the risk of error and streamlining the process. Importantly, it helps to free up your time too.

Automated payroll explained

Automated payroll software handles your business and employee information related to payroll. It can run payroll-specific tasks and calculate all the necessary information required for each month (and end of year reports). At the bare minimum, it calculates payroll for you, but QuickBooks payroll software can also:

• Update tax codes or student loan information

• Generate payroll reports or posting journals 

• Send employee payslips and submit to pensions

These processes could take much longer to do without the help of dedicated software and automations, which lets you focus your efforts on business growth.

What parts of payroll can be automated?

Payroll automation can handle many of the primary payroll tasks that would otherwise take time out of your day, making it an essential time-saver for companies big and small. These lengthy, challenging, or intricate activities include (but are not limited to):

• Wage calculations and deductions, such as pensions and benefits

• Payslip generation and pay distribution

• Income Tax and National Insurance calculations

• Reporting and compliance in line with current employment laws

• Data entry through system integration

By learning how to automate payroll and integrating it into your existing systems and processes, you may be able to reduce compliance errors, reduce time spent on administration, and make the most out of the hours in your workday.

The benefits of automated payroll

We’ve already mentioned that the goal of automated payroll is to speed up the process, reduce manual tasks, and save you time, but let’s take a more detailed look at all the benefits:

Increased efficiency

Running payroll manually requires a lot of time and resources that could be spent on other important business matters that need your attention. Many payroll systems can save you time and money by automating much of the process in the background.

Reduced risk of error

Using automated software also eliminates the risk of human error that might happen with manual data entry for payroll calculations. Payroll systems can use advanced technology to calculate figures like deductions and overtime pay for the highest level of accuracy. They may also automatically keep up to date with changes in tax each financial year.

Pay employees correctly

Your employees work hard for your business. You want to make sure they’re paid correctly and on time, and automation does just that. Automated payroll solutions help ensure that you meet payment deadlines and calculate the correct withholdings for your employees, so even when you’re busy, your team gets paid.

Regulation compliance

Taxes are undeniably complicated, but automated payroll makes it a little bit easier to navigate. Automated payroll will help with things like deducting national insurance and pensions from employees’ wages, so you don’t have to figure it out on your own. Not only will this make things easier for you, but you can also enjoy peace of mind knowing that you’re complying with HMRC regulations and tax laws.

Employee accessibility

Many automated payroll systems offer employees the freedom to view their paycheques and edit their information, reducing the direct burden on you. With the right payroll system, employees can easily view their payslips, update their personal information, and view deductions.

Increased security

Digital payroll systems often use encryption that ensures sensitive data is protected. In traditional payroll processes, companies would store large amounts of employee data physically with printed spreadsheets or payslips. Digitising and automating your payroll process will allow you to securely store protected data.

Being audit-ready

Audits require you to gather a large amount of data to be compared with the records the government holds on your finances, to discover any potential discrepancies. Your company may be subject to audits for several reasons, so it’s important to be ready.

Holding a digital record of your payroll will allow you to easily access and organise your data, meaning you can be prepared for these audits whenever they happen.

What can affect payroll automation? 

Payroll automation, while incredibly helpful, can be affected by a number of important factors you should be aware of. While not an exhaustive list, these can include things such as:

• Inaccurate data entry or incorrect data. While payroll automation can help with consistency, if you’re feeding it poor quality data then the output could cause problems.

• Unsynchronised HR systems. As above, differences in data between your existing systems can lead to incorrect results from automated activities. It’s important to synchronize your other HR systems to make sure the flow of information between them is working.

• Employee training. Untrained employees can lead to errors or underutilisation of payroll systems, so it’s important to make sure the right on-boarding and instructions are given.

• System transitioning and set-up. Moving from existing or legacy systems can be a challenge for companies implementing new software, with plenty of potential pitfalls.

• Cost/investment. Not all payroll systems are made equal, and some may be out of budget for smaller companies. Take the time to review your options to find the right plan for your business.

How to automate payroll

If you’re ready to automate your payroll, then you might be wondering how to go about doing it. There will be variations according to the software you choose, but it will likely follow these steps:

Look at your current payroll processes

Before you dive in and automate your payroll, it’s important to examine your current processes to understand what you want to address or change. That way, you can determine what is most beneficial for you. You might want to consider things like compliance, data transparency, efficiency, introducing more benefits, increasing accuracy, or boosting regulatory compliance. 

Find the payroll software that works for you

Each payroll software solution available vary slightly from the next. With different user interfaces, functions, and costs, it can be hard to find the right one for you. Think about what your top priorities are as a business and pick the tool that best meets those demands. 

For example, it might be important for to you to be able to combine payroll into your accounting software so your financial decisions can be made from a single source of information. In this case you would need to choose payroll software that is integrated with your accounting system—like QuickBooks.

Consider things such as the size of your organisation, the potential cost of the payroll solution, projected future growth, as well as your team's skill level with these platforms. 

If you already use payroll software but are looking to switch, read our article on switching payroll companies.

Prepare your payroll data

To maximise the accuracy and efficiency of a payroll automation system, you need to collect, collate and organise any data. Once you’re certain the data is clean, it’s then ready to transfer. This is a vital step: remember, payroll automation runs on what it is fed. Poor quality data could lead to incorrect outputs, like pay inaccuracies or compliance issues.

Input your payroll data into the new system

Once your data is ready, you’ll then need to add it to your payroll software. Your provider will guide you through what information they require, but this will typically include details such as:

• Your business details—such as your employer PAYE reference number and number of employees.

• Your employees’ details—their national insurance numbers and bank details, as well as contributions, student loan plans, etc. 

• Payroll records—such as all salary and wages payments, staff leave and absences, copies of all PAYE coding notices (P9T) which have been received, in addition to other required documentation.

With QuickBooks, you can seamlessly import your accounting and payroll data using spreadsheets. If you’re switching from another payroll solution, you should be able to export your payroll data as a CSV or an FPS, which can easily be imported into your new solution.

Bear in mind that it can often be easier to wait until the end of the tax year before moving to a new payroll system. You can then start the new tax year using your new payroll platform, without potentially running into problems with data export or transfer.

Train staff on how to use your payroll system

Try to make sure there’s plenty of time for your team to familiarise themselves with the new software. This could involve basic functions, updating records, setting up new automations, setting preferences or running reports. If you’re leading on the transition to an new automated payroll system, it’s important that you yourself have a good understanding of how it works. 

Configure and test the new automated payroll process

While you might be keen to take your new, automated payroll process for a whirl, you may want to hold off on the grand reveal for a moment. It’s important to curate a test environment to experiment with and configure your new system. This can help you determine failure points, ensure it all works correctly, and be certain that it meets your needs. If not, you can adjust without disturbing the live environment and possibly causing complex real-world problems.

Update your employees

It’s important to be transparent when it comes to people’s pay, so informing your employees of the change can be helpful. It means if their payslips look different, they won’t be confused or concerned about the change. If your solution provides an employee portal, giving your employees access will allow them to access and update their own data. 

Choosing the right payroll system

As we’ve mentioned, different payroll software providers will feature different things in their products. It’s important to find the one that meets your business’ requirements.

Think about what you need from your payroll system

Firstly, consider what you’re looking for from your payroll system, and you can prioritise features from there. Some things you might wish to prioritise are:

• PTO (paid time off) tracking

• Employee data management

• Reporting

• HMRC recognised software

• Time and attendance tracking

• Employee self-service access

• Software integrations

• Same-day direct deposit

• 24/7 support

• Cloud-enabled

• Mobile app

• Pension auto-enrolment

• Automation for pay runs, pension distributions, tax code updates and more

Consider whether it’s the right fit for your organisation

In addition to these features, you might also want to ask yourself a couple of questions to gauge if it’s the right fit. Questions to ask could include:

• Which parts of the payroll system are automated?

• Will this automated payroll system work with my current HR software or processes?

• Will this software work with the size of my company?

• Can this software keep up with my growing business? Are there user/employee caps that would impact my business as I scale?

• Does this system include all the features that are important to me?

• Will using this automated payroll system save my business time and money?

• Does this solution fit into my current business budget?

• Does this software enable cloud accessibility for remote access and backup?

• Does it integrate with my accounting software?

• Is the cost structure transparent and favorable, or are there hidden/add-on fees I need to consider?

• In what ways can I contact customer support? Do they have chat/phone, or only email/web articles?

Once you’ve answered the above questions, you should have a better idea of which payroll system is right for you.

When is the right time to start using automated payroll?

Automating payroll can be beneficial for businesses of all sizes. Regardless of the number of employees, managing payroll is often time-consuming without the right tools. But switching over to automated payroll can help to ease the workload and free up resources for your business.

You might be holding off due to budgetary concerns; after all, many small businesses find themselves strained in the first few years. However, while manual payroll may work if you have a just a few employees, keeping up with it will become increasingly difficult—and inefficient—as your business grows.

That’s why it may be beneficial to set up automated payroll before you get to a point where you’re overwhelmed, and things start slipping through the cracks.

QuickBooks prides itself on offering affordable solutions for small businesses. Check out our plans and pricing here.

What else can automated payroll help with?

As well as improving your general payroll processes, implementing automated payroll comes with other benefits to your wider organisation.

Employee transfers

During the employee transfer process, you will need to manually input a large amount of data, particularly if you are transferring multiple staff members. 

The data required to transfer a new employee is required by several departments, such as payroll, HR, and legal, but data entry is repetitive and prone to errors. 

Thankfully, by automating your payroll process, not only will there be fewer opportunities for clerical errors, but you can also automatically send digital employee records to relevant departments to ensure a smooth transfer process.

Salary reviews

Salary reviews are a necessary process for several reasons, such as promotions, pay rises, business-wide financial reviews, or in companies where salaries are regularly adjusted, such as sales. 

This process will be made easier when payroll has been automated, allowing you to access and collate financial data from accurate digital records.

Tax reporting

Your tax reporting process can be made easier with payroll automation, by allowing easy data transfers that can be synchronised across several systems and departments within your company. 

Maintaining an accurate record of tax is essential to producing accurate tax reports, helping you avoid unnecessary audits or investigations from HMRC.

How can QuickBooks help with your payroll? 

QuickBooks’ payroll software is designed to make payroll smooth and easy for small businesses. It integrates with our accounting software and other financial tools so you can keep all your finances in one place—and easily accessible at the click of a button. 

• Directors and first-time employers can choose our Payroll Core to easily manage their payroll in one place.

• For larger teams or medium-sized businesses, Payroll Premium offers time tracking, insights and automation.

• Our ultimate all-in-one payroll platform, Payroll Elite, goes a step further with features for client billing, and project tracking and profitability.

Automatically set up pay runs, submit to multiple pensions, update tax codes and generate reports—helping you understand and run your business efficiently. 

Which level of QuickBooks automated payroll do I need?

We offer two solutions to help you automate payroll in a way that's right for your business.

Core Payroll

Perfect for: director-only businesses and small employers who need speed and simplicity.

• HMRC-recognised

• Automatic pay runs

• Pay employees weekly and/or monthly

• Generate payslips

• Calculate statutory maternity, paternity and sick pay

Learn more about Core Payroll

Advanced Payroll

Perfect for: employers who need HR features and the in-depth analysis of customisable reports.

• Everything in Core Payroll, plus:

• Timesheets

• Choose any payroll frequency

• Employee portal & HR features

• Calculates 5 statutory payments

• Automatic pension submissions to 5 pension providers

Learn more about Advanced Payroll

In today’s world, just about everything can be automated. So why shouldn’t your payroll be automated too?

Need help with your payroll processes? 

Find an accountant or bookkeeper near you. 

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Payroll automation FAQs

Is automated payroll only for large businesses, or can small teams benefit too?

Introducing and learning how to use automated payroll isn’t reserved for large businesses; smaller companies can benefit too. Many solutions, such as QuickBooks, can scale with the size of your enterprise. That means you can benefit from increased accuracy and time savings at all business sizes. Just choose a solution that’s suitable for your company and needs.

What data do I need to prepare before implementing an automated payroll system?

To successfully implement an automated payroll system, you need to ensure you have accurate records of your employees’:

• personal details

• salary or hourly pay rates

• up-to-date bank account details

• records of any benefits or deductions.

Additionally, you should prepare any employee earnings for the year to date, employee earning for the year to-date, PTO (paid time off) balances and any other historical data. You may also need to have company information such as PAYE employer reference number and absence records to hand.

Can I do payroll in Excel?

Yes, you can create a robust and cost-effective payroll solution with Excel, which could work for microbusinesses or freelancers. However, this can be a time-consuming method with a high risk of human error. As your business grows, you may find this method hard to scale, making automated payroll solutions a suitable long-term option.

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