What’s the easiest way for small businesses to do payroll?

If you’re managing a small business, it can feel like there are hundreds of things to keep on top of, not least of which payroll. Ensuring your staff are paid on time, in an efficient and compliant way can be a lot to juggle.

Fortunately, in this guide we’ll be exploring ways small businesses can simplify payroll. We’ll take a closer look at what payroll is, why it’s important, and how you can make it work for your business. 

The easiest way for a small business to do payroll: in summary

• Small business payroll is the process of paying employees for the work they do. Often, the easiest way to manage payroll is with payroll software, which can help with calculations and reports.

• The best payroll software for you will be the one that adapts to fit your business and any challenges you may face. It should be easy to use from day to day but have enough features to handle the intricacies of your business.

• There are many benefits to using software for payroll as a small business, but overall, software should reduce the amount of time spent on administrative tasks and allow you to invest time into other parts of your business.

What is small business payroll?

Small business payroll is the basic process of paying your employees while deducting pay for things like Income Tax, National Insurance, retirement contributions, or student loan repayments. The basic process involves calculating gross pay, applying deductions, and reporting payments to HMRC. You’ll also be expected to provide payslips (whether physical or virtual) and deal with things such as sick pay and maternity pay. 

Key components of payroll for small businesses

The key components of payroll accounting for small businesses include:

• Gross pay—this is the total money earned by an employee, before deductions. Typically calculated as hours worked X hourly rate.

• Deductions—the amounts you’re legally obliged to subtract from an employee's pay. There are several reasons why you may need to do this, but the most common are: Income Tax, National Insurance contributions, student loans, and pensions.

• Net pay—this is the pay taken home after all deductions.

• Payslips—these are mandatory and should be provided on the day of payment or before, and should contain key details like gross pay, tax and other deductions.

Why is payroll important for small businesses?

At its core, payroll and remunerating, or paying, your employees is a legal obligation. Failing to pay your employees on time can have a serious impact on your business operations. You can face legal action from employees for late payments and fines from HMRC if you fail to report the relevant information and keep accurate financial records.

Another impact small businesses see from poor payroll management is a drop in employee satisfaction. This can result in anything from a dip in productivity to employees leaving the business. 

On the other hand, an efficient, accurate, consistent payroll process can help a small business tick over in the right way, leaving staff to focus on the important stuff.

Common payroll methods for small businesses

How you manage payroll as a small business is up to you. There are a couple of solutions, each with its pros and cons. The right solution for you will likely depend on your situation, so consider things such as commission, contractors, or overtime, and how they impact your payroll responsibilities.

Payroll service providers

Some businesses opt to outsource their payroll duties, sending the work to professionals. One benefit of payroll service providers is that they can offer flexibility, delivering a full-service or helping with specific tasks. While they can be time-friendly and provide peace of mind, these services can be expensive.

Payroll software

Payroll software provides an up to date solution to payroll, offering a range of features to make the process easier. Potentially cheaper than a payroll service provider and more accurate than manual management, today’s software provides compliant and efficient solutions that allow you to take control of your business's payroll.

Is payroll software the easiest way for small businesses to do payroll?

For small businesses, dedicated payroll software can be an easy, time-efficient method. Capable of simplifying processes, often through automation, software makes it easier to manage your business's payroll. Whether it’s automatically calculating costs or generating payslips based on the information you input, it can free up hours of work that you can invest in other areas of your business. 

Regularly updated software can help you stay compliant with the latest tax legislation, offering you peace of mind when paying your employees. Likewise, the odds of errors may reduce when you’re not making the calculations yourself, adding confidence to your decisions. 

How to choose the right payroll software for your small business

Choosing the right payroll software for your small business will depend on your business and what you want. Think carefully about what your business needs and any pain points you may be experiencing.

Key features to look for

Not all payroll software contains the same features, and it can be easy to be tempted by options that offer long lists of extra tools. However, it’s worth focusing on the features that will be most beneficial for your business. Useful features to look for include:

• Cloud computing

• Report creation

• Payslip generation and management 

• Automate payroll calculation

• Automatic submission of Full Payment Submission to HMRC

Scalability

As your business grows, you’ll need payroll software that grows with you. It may be tempting to choose a software that’s tailored to businesses with one or two employees, but if you aim to scale your business, thinking long-term can save you headaches in the future.

Cost and pricing

Advise on considering the overall cost, pricing structure, and value for money. While you may be able to find free versions of payroll software, permanent and accurate.

Customer support

Having customer support on-hand to help guide you through processes or troubleshoot issues can be invaluable when you have important payroll deadlines to make.

Benefits of using payroll software for small businesses

There are multiple benefits of using payroll software for small businesses, often improving how you work and manage your time. Read on for a detailed breakdown. 

• Time-saving: By automating tasks such as calculations or submissions, you can save time on tasks that would have been performed manually. The time saved with payroll software can be invested back into your small business.

• Accuracy: Human error is always a risk when it comes to calculations, so using software that takes out the guesswork and mental maths can help ensure accuracy. 

• Compliance: With regular updates, software can adhere to the latest HMRC regulations and reporting requirements, to help you avoid falling foul.

• Automation: Payroll software can take control of the monotonous tasks that take up time in your small business. Some examples may be able to streamline routine tasks like payslip distribution and pension contributions, and more.

• Record-keeping: With payroll software, small businesses can keep their payroll data in a centralised, digital storage. With cloud accounting, you can enjoy access to payroll from almost anywhere while benefiting from the security of cloud software.

What happens if you don’t run payroll as a small business?

Getting payroll right is essential. Failing to do so will not only impact your employees but could have consequences for you alongside your business. 

• Penalty charges: Late submissions or payments for Income Tax and National Insurance contributions can result in fines from HMRC.

• Employee dissatisfaction: Employees who aren’t paid on time, or are paid incorrectly, are unlikely to stick around for long, and those who do may begin to struggle with low morale and productivity.

• Legal implications: You could also face legal challenges from employees looking to reclaim lost payments and missing revenue from underpayment. 

• Interest to pay: Similarly, if you underpay employees even unintentionally, you could be ordered to pay back what you owe with interest.

Looking to introduce payroll software to your small business, or move from an older tool to a new one? Explore QuickBooks payroll software solutions and find the right option for your organisation. 

Learn more about QuickBooks Payroll software

FAQs

How often should a small business run payroll?

It’s common for small businesses to run payroll every two weeks, but it depends on how you choose to pay staff. If you have a business with high turnover, for example, food service or delivery, it may be easier to run payroll weekly. Your cash flow and administrative tasks could also impact your decision.

Do I need to report payroll to HMRC?

Yes, you must report payroll to HMRC. You can report payroll on or before the payment date using a Full Payment System that follows Real Time Information rules. There’s no minimum for the wage you should report, so you need to report payroll regardless of how much employees are paid. Likewise, even if you’re only paying yourself, you should still report it to HMRC.

Can I do payroll myself without software?

No, payroll should be filed using software in order to follow UK payroll RTI (real-time information) rules. You can choose to use a third party provider, or use a free option from HMRC. For the best results and peace of mind for your payroll, it can help to use specialist software for the heavy lifting.

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