Benefits of a payroll system

Processing payroll is an important part of all businesses. And, while it can come with its own difficulties, the benefits of an effective payroll system can positively impact all areas of your business – from HR departments to employee morale. This guide will explain the benefits of an automated payroll system and how, regardless of business size, it can help.

Benefits of a payroll system: In summary

• A payroll system moves away from manual data entry, saves time and mitigates human calculation errors that could be costly. 

• Payroll software can help with compliance, tracking Income Tax and National Insurance deductions in a consistent way.

• Creating and dispensing regular, on-time digital payslips can help to protect team morale and maintain financial transparency.

What is a payroll system?

A payroll system is a platform businesses use to manage and automate the process of paying employees. It’s an all-in-one solution that calculates employee salaries and taxes, monitors hours worked, organises any deductions, and issues payments through direct deposit.

Most companies will need to set up some type of payroll system—even if you only have one employee. And, while it may not be the most glamorous part of running a business, it’s still essential.

Staying on top of your business payroll allows everyone on your team to get paid the correct amount on time. However, the payroll process can be repetitive and time-consuming. It can also get complicated for companies with a large workforce. Let’s explore what a payroll system is, how payroll works, and how your business can benefit from a payroll process.

How does an automated payroll system work?

Every pay period, an employer calculates and distributes employees’ wages. The employer is responsible for accurately adding up the hours an employee worked and calculating their gross wages.

The pay period is the fixed time where an employee's work hours and earnings are tracked (e.g. the 1st to the 20th). The pay date is when the funds are transferred to the employee’s bank account and pay slips are dispersed. 

With more than a few employees, running payroll can become complicated and overwhelming. So, for time and convenience, many business owners look for ways to avoid running payroll themselves. This can include setting up an in-house payroll system or outsourcing payroll to a different company.

Here’s how the pay cycle works with an automated payroll system:

• Data collection: automatically pulls working hours, sick days, PTO and overtime.

• Calculations: works out gross pay, subtracts pre-tax deductions like pensions, and calculates taxes and National Insurance Contributions (NICs). 

• Approval: managers will check the pay run ensuring it’s accurate.

• Dispense: on the established pay date, the system will trigger the money to be sent to the accounts and generates digital records and pay stubs for payday.

Different types of payroll systems

While it may sound like there’s just one standard approach, there are actually four key types of payroll systems. Each one has their own benefits, along with some drawbacks. We explain the differences between the different types of payroll systems, these include:

In-house manual payroll processing

Some companies set up an internal process where they manually run payroll themselves each pay period. In this case, either the business owner or an HR employee is responsible for running the payroll. While this can be an economical option for small businesses, it can be hard to sustain once your team grows.

There are some drawbacks to using in-house manual payroll processing including:

• Time consuming: Valuable HR time and resources can be taken up by payroll processing that can be automated.

• Human error: Manual data entry can lead to issues such as overpaying and underpaying. 

• Data security issues: Strict data protection is essential and manual payroll systems may use unsecured spreadsheets or physical documents.

• Hard to sustain as teams grow: Manual payroll systems might work for one or two employees, but if you have many staff members this may not be a viable solution for long.

Full-time accountant

An accountant is a financial expert who can run payroll and file tax forms on your behalf. Outsourcing payroll management to an accountant can provide helpful support. They can take care of the payroll process from start to finish and offer advice and insights.

Looking for an accountant? Find one with QuickBooks.

Outsourced payroll service

Payroll providers specialise in running payroll for other businesses. They offer various payroll services, from time tracking to filing your company's taxes. Generally, outsourced payroll providers charge a flat fee per month or per payroll run.

Payroll software

With specialised payroll software, you can automate payroll processing entirely. One benefit of these software solutions is that they minimise the risk of human error. Plus, most payroll and HR software programs can generate detailed payroll reports and pay stubs for each pay period.

Other benefits of an automated payroll system include:

• Advanced encryption: This secures sensitive employee records (like NI numbers and bank details)

• Seamless data transfers from time-tracking portals: Employees can get paid according to their hours worked automatically. PTO and sick leave (paid or unpaid) will be pulled through from time-tracking portals.

• Regulatory compliance: Systems can help you amend payments in certain areas such as tax rates and statutory payments.

• Accuracy: Setting up a payroll management system helps ensure that payroll gets done accurately and on time.

Benefits of a payroll system

Payroll software and systems can offer unique advantages over other payroll solutions. Here are several benefits of these particular payroll services:

• Saves money: Pricing is probably one of the most important considerations for many small business owners. Hiring dedicated in-house payroll managers can add overheads in the form of salaries, benefits and PTO. However, with a payroll provider, you typically pay a flat monthly fee, or sometimes a per-user fee, making it a cost-effective option in the long run.

• Minimises errors: When you run payroll manually, all sorts of human errors can occur. These errors might result in employee dissatisfaction or tax noncompliance. Payroll software completes complex calculations quickly, saving you time and minimising the chance of unintended slip-ups. Some payroll companies can offer penalty protection in case you incur a tax penalty.

• Access anywhere: Almost every payroll provider has a website or mobile app, so you can access payroll data no matter where you are. Many also offer employee self-service portals that allow your workers to track their hours and view HR data on the go.

• Boosts employee satisfaction: Your employees want to receive the wages they’re due on payday. As an employer, even making a single mistake with a pay slip can be damaging. If a pay slip arrives in an employee’s bank account late, this can prevent them from paying bills in the short run – and affect their longer term trust in the company. Pay slip distribution through a payroll system helps to ensure employees get the correct amount on time.

How to choose a payroll system

When it comes to choosing a payroll system, it’s worth considering certain feature you want to ensure the payroll system you’re considering meets your needs. Below, we detail some key payroll system features.

Automation

Automation is a great way to streamline your payroll—making it easier to manage. Automated payroll systems can cover payment processing, tax calculations, and report generation tasks.

When you use payroll software, you can automate most aspects of the payroll process. In this case, you’ll just have to do some initial setup, then you can run online payroll in a matter of clicks each pay period.

Automated payroll systems tend to be securer and more accurate than manual systems. They come with encryption technology and built-in calculators to prevent breaches and errors.

Tax compliance

One of the most difficult parts of processing payroll is accounting for tax withholdings. Each pay period, you deduct payroll taxes—including Income Tax, National Insurance contributions, and more.

Failing to account for employment tax deductions can land your company in trouble with the HMRC. A solid employee payroll system will make any necessary tax deductions or garnishments to help your company stay compliant.

Time tracking

Time tracking can be a gamechanger for businesses—both big and small. A time tracking system ensures employee hours are accurate. It also helps boost productivity and saves time.

When you have a payroll system with time tracking, you can embrace a variety of tools, like mobile apps and punch-in clocks. You can ensure there’s a time-tracking system for everyone.

Beyond time tracking for payroll, such features can also help monitor employee performance, boosting efficiency.

Streamline your payroll process with QuickBooks

If you run a small business—or any business—setting up a payroll system can be crucial. A payroll system makes it easy to accurately compensate your team on time. Plus, you can join more and more companies in starting to automate the payroll process.

With payroll software like QuickBooks, you can save time and minimise errors. Set up auto payroll to run each pay period—and get automatic payroll tax filing and free direct deposit services.

Learn more about QuickBooks payroll software.

How a payroll system works: FAQs

What are the four different pay systems?

The four different types of pay systems are: hourly, salary, commission, and piece rate. Hourly employees get paid for each hour they work. Salaried employees receive a fixed amount, regardless of hours. Commission workers earn based on their sales, while piece rate workers get paid per item produced or task completed.

How does a payroll system help employees?

There are many benefits of a payroll system for employees. Firstly, it ensures they're paid accurately and on time. It also simplifies tax deductions, provides pay stubs, and allows employees access to payroll info—usually through online portals. Such features can help increase employee satisfaction and transparency.

Can you run a payroll system in Excel?

Yes, you can use Excel to manage a basic type of payroll system. However, it will lack advanced features like time tracking and direct deposit. While Excel is cost-effective for small businesses, a more advanced payroll system will help reduce errors and improve efficiency as your team grows.

Is payroll automation suitable for small businesses?

Yes, there are many benefits of a payroll management system for small businesses. It can save significant time and resources, allowing owners to focus on other important aspects of their operations. It can also help you ensure tax compliance and correct pay.

Is a payroll automation system secure?

Reputable payroll automation software uses advanced security measures, including data encryption, secure access controls, and regular audits, to protect sensitive employee and company information.

How does payroll automation handle tax compliance?

QuickBooks’ payroll automation software is updated regularly to reflect changes in tax laws and regulations. It automatically calculates and withholds the correct amounts for various taxes, including Income Tax, National Insurance, and other mandatory deductions.

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