How does a payroll system work and what are the benefits

7 min read
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Payroll accounting can seem like a bit of a headache, even though taking on employees is a sure sign of business success

Once you start employing and paying other people, there’s a lot to deal with – keeping on top of all the changes in tax, employment law and regulatory issues is a complex and time-consuming task. Year-end becomes a minefield with HMRC knocking on your door for tax returns, alongside the race for P60s. And as you can imagine, it’s a breeding ground for transcription errors and miscalculations. 

To keep errors and miscalculations to a minimum when preparing for the new tax year, your business may benefit from using payroll software. In this article, we’ll explore what a payroll system is, the benefits of a payroll system  and discover how it can help businesses to run payroll easily and accurately.

What is a payroll management system and how does it work?

A payroll management system, or payroll software, is described as: a system or software that manages your payroll. When we say ‘payroll’, we’re talking about the process by which employers withhold some of their employees’ earnings to pay directly to the government as tax. 

Payroll software simply makes this process run correctly and easily, processing the data you input; working out how much you owe, to whom and when; and ensuring that all payments are sent to the right entities on time.

What does payroll software do?

In a nutshell, payroll software will ensure you pay your staff the right amount at the right time. And that’s crucial in holding onto your staff – happy staff means they’ll stick around for longer, which improves your bottom line as well. 

Payroll software also automates much of the processes involved in payroll accounting, leading to more accurate data and reports.

Who needs payroll software?

The simple answer is anyone with employees, or who pays themselves as an employee. While it is possible to work out payroll manually, it presents serious costs in terms of time and energy, as a maze of deductions need to be worked out for each individual employee.

Since HMRC introduced Real Time Information (RTI) reporting, employers have to submit PAYE information through compatible software every time they pay their employees. 

This Full Payment Submission needs to happen on or before the day the employee is paid through HMRC online services. Payroll software is the best way to do this as it knows what you need to know – read on and find out why it’s the way forward.

QUICK TIP: Before you submit any information to HMRC you need to register for a Government Gateway account and enroll for the PAYE for Employers.

What are the benefits of payroll software?

There are several benefits payroll software can provide to a business. From staying compliant with government regulations, to improving accuracy and saving time, we have compiled a list of key benefits a payroll system can provide.

1. Save time and reduce errors

Payroll accounting software, such as QuickBooks, takes the number crunching out of the process, leaving your payroll administrator to oversee everything. 

Income tax deductions and National Insurance Contributions (NICs) will all be worked out for you. It can also track absences, expenses, bonuses, holiday pay, overtime, pensions and (of course) hourly pay or salaries.

And with the advent of open banking and psd2, payments are faster than ever (and more secure).

2. Stay compliant with government regulations

Staying up-to-date with current tax rates and responsibilities can feel like a constant game of catch-up. With payroll software, there’s no need to worry. It tracks all the latest regulations automatically, dealing with issues from GDPR to Workplace Pensions (auto enrolment) as well.

3. Improve accuracy and simplify the payroll process

As with all aspects of your business, manual data entry means the risk of human error and potentially costly mistakes. Under-deductions, late payments, miscalculations – they’re all part and parcel of manual entry.

We’ve all done it: hit the spacebar mid-spreadsheet on Excel and deleted a formula without even noticing later on. When all the number crunching is handled by your payroll software, that risk is removed. 

You’ll actually be on top of your record keeping, so it’s much easier to meet your deadlines and make those payments to HMRC in plenty of time, especially with a built-in reminder.

4. Your employees will benefit

Some payroll software offers employees access to their own portal. This gives them restricted access to the system and allows them to check details, take a look at their payment history and even book time off.

5. Organise your stationery and avoid mistakes

Employers are required to give each employee a payslip with the details of their pay and any deductions. Doing this manually increases the risk of any errors made, while automating this means the payroll management system can run payslips automatically, sending out secure and compliant payslips straight to your employees. 

Make sure the payroll software you choose lets you produce smart, customisable, secure and compliant payslips that can be printed or emailed as well as P60s and payroll reports.

6. Make your year-end easier

Automatic tracking, recording and reporting is offered as part of most payroll software. These features make the year end far less stressful for you or your payroll manager – gone are the days of paperwork mountains.

7. Avoid financial penalties

Payroll software can also save you a lot of money in penalties by ensuring you get payroll done correctly on the first try. Conducting payroll places extremely high levels of responsibility on employers, and getting it wrong could potentially be very financially painful.

Which payroll software will provide the most benefit?

As with any choice concerning your business, you need to carefully explore your options and select the payroll software that offers the most benefit to your business. Some areas you may want to consider include:


As noted above, different systems can do a range of different things. You should think carefully about what sort of features you need - and avoid paying for those that won’t benefit you.


Different systems have different payment structures, and choosing the right one can save you a lot of money in the long term. If you run payroll multiple times a month, for instance, a monthly fee will likely work out cheaper than paying each time you run payroll.


Which other systems does your business use? To get the most out of your payroll management software, you should look for a system that can integrate with the ones you use to keep track of things like attendance, hours worked and time off.


While employees should generally be able to view their own pay slips, tax forms and other information, you should consider whether you want them to be able to do things such as edit their details or request time off through the payroll system.

Can a large business benefit from a payroll system?

If you have fewer than 10 employees, you can use HMRC-recognised free payroll software to report PAYE information online in RTI, but this may not help with Workplace Pensions. 

Larger businesses, or those looking for additional functionality, will need to use paid-for software that’s recognised by HMRC. To get the most out of your payroll software, choose a system like QuickBooks that can support:

  • payments and deductions including NIC, pension contributions, student loans and statutory payments (sick, maternity, paternity, adoption and shared parental) - please note statutory adoption pay and shared parental payments are only supported by our advanced payroll software.

  • Workplace Pension (auto enrolment) schemes such as Smart Pension, NEST and People’s Pensions, assessing employees, creating communications managing contributions

  • a variety of payment runs, such as weekly or monthly

  • error corrections, including editing multiple employees and pay periods at one time

  • full integration with other systems like your business accounts, to help reveal business insights. It’s the only way to ensure maximum time management, reliability and accuracy.

QUICK TIP: Make sure the software you choose offers a step-by-step guide to getting set up and offers good support if you’re unsure about anything.

How can I start to benefit from payroll software?

QuickBooks offers a choice of secure payroll accounting solutions.  QuickBooks Online Payroll  supports smaller, simple payrolls. .

Prices start from £4 per month + £1 per paid employee per month. 

It makes sense to simplify your payroll and you’ll be glad of this when it comes to year end. And with more time on your hands, you can concentrate on what really matters - growing your business.

We hope you’ve found this article useful. Find out more about how QuickBooks’ payroll solutions could help streamline the way you pay your employees and stay compliant.

Discover QuickBooks online accounting software today


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